IMI Opsessia

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imi opsessia

Transcript of IMI Opsessia

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From the Editor's Desk

We are what we repeatedly do. Excellence, then, is not an act,

but a habit. – Aristotle

Welcome to the inaugural edition of “Opsessia”- the Biannual

Operations magazine of IMI. It gives us immense pleasure to

bring out this issue, which is dedicated to the world of Operations

management. This magazine is inspiredby the insightful

thoughts of highly intellectual professors and inquisitive students

studying across B-schools in India, thus blending experience and

new thinking from the future leaders.

The articles in this issue are on different aspects of Operations

Management and cover a myriad of topics like Build-Operate-

Transfer, Sales and Operations planning, Green Strategy, JIT,

Impact of GST on SCM, changing trends in Global SCM and

achieving operational excellence through Financial Instruments.

This is just a glimpse of what we aim to bring to you in the future. I

hope that “Opsessia” will help you gain more insight into major

developments in the field of Operations Management across the

globe.

Wishing you all an exciting reading experience.

Team Genesis.

Looking forward for to your feedback and suggestions at [email protected]

For more information on Genesis, the operations club of IMI visit our website

www.imigenesis.com

TEAM GENESIS

Senior Genesis Team

Ambuj

Atreya

Richa

Sonali

Vijish

Junior Genesis Team

Alisha

Anubhav

Jai Shivam

Mithilesh

Ratan

Shilpa

Shishir

Srikant

Sumant

Tarun

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Genesis Room

Top

Line

(Left to

Rig

ht) : V

ijish, Ta

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, Atre

ya, A

mb

uj, M

ithile

sh, R

ata

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lisha

,B

otto

m Lin

e (Le

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t) : Rich

a, S

on

ali, S

rikan

t, Sh

ishir, A

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Opsessia

A Word from the Director General

Dear Friends,

It gives me immense pleasure to pen down my thoughts for the inaugural issue of

“Opsessia-obsessed with operations” magazine. This initiative taken by Team

Genesis, the Operations Club of IMI, will provide a forum for dissemination of ideas

and best practices in Operations Management.

Ever since its inception, International Management Institute (IMI) has been a centre

for nurturing the very best of the managerial talent in the country. To achieve this,

the Institute has taken a number of initiatives to groom future leaders who are value-

driven and yet conscious of the fact that to achieve sustainable organisational

growth, one cannot overlook the societal and environmental concerns. As part of these initiatives, students are

encouraged to come forward to implement ideas which can help them in exercising their managerial talent and at the

same time provide value addition to management education. The progress of IMI has been noteworthy, with its students

performing remarkably well in the corporate world.

I believe “Opsessia” is a platform where students can share their views and come up with novel ideas to contribute to the

all pervasive world of Operations Management. This will enhance the awareness regarding this subject and will enthuse

the readers to be part of Operations function of an organization. It is a manifestation of the students' creative ability and

their unfettered ambitions. Entirely a student-driven initiative, it displays the potential of young innovative minds that are

always searching for newer horizons to explore.

I wish the young, enterprising minds a bright and rewarding future.

Dr.Pritam Singh (Padma Shree)

Director General

International Management Institute

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Opsessia

Team Genesis, the Operations Club of IMI has taken the initiative to come up with the very first issue of “Opsessia” a magazine dedicated to the field of Operations Management. In today's dynamic global environment, operations management has assumed centre stage as every firm tries to achieve Operational excellence to reduce cost, improve quality and achieve efficient delivery.

This is the inaugural issue of a proposed Biannual Operations magazine. The Genesis team had held a competition calling for articles from the MBA student fraternity to contribute towards making of this inaugural edition of the magazine a success. The response was overwhelming and the quality of articles received was brilliant. However due to space constraints we have not been able to print all the received articles in our magazine. This inaugural issue contains the Top 8 articles which were meticulously selected by the Genesis team members assessing the quality of content and style of presentation.

The magazine contains articles and write-ups relevant to the field of Operations written by students from across the top business schools in India. Time and again it proves the enthusiasm of the students toward the field of Operations management and clearly emphasizes the importance of Operations Management in the current business scenario. This issue also contains some articles written by our distinguished faculty from the field of Operations Management and a few written by our Genesis club members.

I am glad to present to you this magazine and hope that you will have a pleasant reading experience as you go through its pages.

Pradip K Bhaumik,Professor, Quantitative Techniques and Operations Management & Former Acting DirectorInternational Management Institute.

A Word from the Prof P.K Bhaumik

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“The best CEOs I know are teachers, and at the core of what they teach is strategy”

--------------------------------------------------------------------- Michael Porter [Harvard Professor]

650 students....250 teams.... 38 top B-schools....Seven rounds........120 Hours..........and finally teams from IMI

and SPJMIR battled it out in a mind boggling game of strategy –Ranneeti, designed and executed by Genesis,

The Operations Club of IMI.It was a one of its kind online event that kicked off on 19th October and concluded th

on 4 of November. Ranneeti created much buzz in the B-school events arena and saw participation from top

B-schools like IIMA,IIMC,FMS,XLRI ,JBIMS,IIMK,NITIE,MICA,IIFT,IIMR and SJMSOMto name a few.

“All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is

e v o l v e d ” - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - S u n T z u

The importance of strategy in business cannot be overemphasized.This was the driving force behind our

effortsto develop astrategy game, which is based on game theory. The event was an online simulation that

tested one's capabilities in areas like planning, futuristic thinking, creativity and patience. Each team had a

maximum of three members and had to place their warriors in the battlefield which was a 6 X 6 matrix

(provided in an excel file).The warriors included Snipers, Bombers, Commandersand Soldiers each with

different skill sets. It was an intensely interactive game that tested one's strategic skills through combats

between warriors. Initially teams were given a sum of money, and a pool of warriors.Teams had to recruit their

own army choosing from soldiers, snipers, bombers and commanders. With its sheer energy and twists lurking

at every corner, Ranneeti11' did manage to sweep the participants off their feet. The one team that survived till

last would be christened the 'Lord of Strategy'.

With each round, the difficulty level increased and so did the excitement. In theinitial two

rounds,Commanders and Bombers were the most powerful units, in thelater stages, Snipers and finally in the

knockout stages the Soldiers reigned supreme. Constraints were introduced in the form of walls inside the

battlefield in order to enhance the difficulty with each successive round. The idea was to give the players a feel

of real life warfare where not only rules but also the game changes. Real business world is dynamic and shoots

up new challenges, reverses the conventions and again brings them back and tests your strategic and intuitive

abilities.

The following is the list of colleges whomade it tothe top 16:

XLRI,SPJIMR,IMI,XIMB,IIM Calcutta,BIM Trichy,MDI,IIT Delhi and IIT Madras.

Eventually, team 'Chanakya' from SPJIMR emerged as deserving winners of a close fight against team

'Whistleblowers' from IMI and took the crown of 'Lord of Strategy' in the finals.

Ranneeti 2011Strategy

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In this Issue

Faculty Room :Relevance of Operations Management to Management Education - 5

Club Room :India: An emerging face as a Global Supply Chain Management Hub - 7

Class Room :

Achieving Operational Excellence through Financial Instruments - 11

Build Operate Transfer- A new schema in Infrastructure Development - 18

“Going Green” Operational Strategy of European Airlines a lesson for the-

India's Airline Industry - 21

Impact of GST on Supply Chain Industry - 25

Role of Information Technology in Supply Chain - 28

JIT and supply chain disruptions - 31

Improvement of S&OP and its Synchronization with advanced functions-

A key to sustainable operations management - 33

ADAPT TO THRIVE Mass-Lean-Agile-RAM - 15

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Methods & Systems, Vol. 24, No. 3.pp.4-14.

David, A. (2007). Planning process particulars : Meeting your just-in-time customers' demand. APICS magazine.

Gips, J. (2002). Sales and operations planning across the supply chain. APICS International Conference Proceedings

Raekar, R.H. (2002). Marketing : a key collaboration for effective sales and operations planning. APICS International Conference Proceedings

Stahl, R.A. (1999), Sales And Operations Planning – A Fundamental That Still Works. APICS International Conference Proceedings

Wood, C.B., & Boyer, J.E. Jr. (2002). Sales and Operations Planning at Elkay Maufacturing: A Case Study. APICS International Conference Proceedings

Oliva, R., & Watson, N. (2006). Cross-Functional Alignment in Supply Chain Planning: A Case Study of Sales and Operations Planning. Harvard Business Working Paper. No. 07-058

Mazel, J. (2009). New research tells how to put muscle into S&OP Process, Supply chain strategy

Williams, M.K., Combining CPFR with S&OP to attain optimum customer service. Williams supply chain group

Hymanson, J., Whitepaper on Enhancing Sales and Operations Planning with Forecasting Analytics and Business Intelligence

A Guide to CPFR Implementation. (2001, April). Report by Accenture, ECR Europe.

S&OP Process is a Strategic Driver for Improving Business Performance. (2008, December). Research Brief, Aberdeen Group.

S&OP's Impact on Global Supply Chain

Transformation. (2008, February). Research Brief, Aberdeen Group.McCarthy, T. and Golicic, S. (2002), “Implementing Collaborative Forecasting to Improve Supply Chain Performance,” International Journal of Physical Distribution & Logistics Management. 32:6, p. 431-45

Sneha RamtekeIIM Kozhikode

Akshay JadhaoIIM Kozhikode

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Relevance of Operations Management to Management Education

All activities which convert input resources into useful

outputs, either goods or services, are termed as

operations. It is obvious that operations would be

required in any business organization (or for that matter

any organization!) which intends to produce useful

products or services. Operations Management is taught in

B-schools worldwide as a core subject along with other

core subjects which cover Marketing, Finance and Human

Resources. Even though operations are required in service

organizations as much as they are in manufacturing

organizations, the syllabus for the core subject is often

inclined more towards manufacturing. The relevance of

studying Operations Management can be discussed both

at nation level and the firm level.

Nation Level

The importance of studying Operations Management as

part of management education can be appreciated

considering the role of Operations / Manufacturing in the

economy of any country. Manufacturing contributes to

about 15% of our GDP. Despite the fact that the service

sector is growing manufacturing has a crucial role to play

in the growth of the economy. The Industrial Production

Index is considered an important parameter for measuring

the economic growth of the country. A drop in Industrial

Production Index is always a matter of concern for our

Finance Minister.Needless to say, manufacturing holds the

key to economic growth of our country.

The role that manufacturing can play in the economy of

any country becomes obvious when we look at the two

countries: China and the USA. China is now universally

accepted as an economic superpower (apart from it being

a military superpower). The growth of China into such a

strong economy has largely been due to the fact that it has

developed excellence in manufacturing and now

dominates the world markets, be it developed economies

in the West or developing economies like India. Thus,

Operations Management has contributed to the rise of

China as much as it has been the reason for the fall of the

US economy. The USA allowed manufacturing to move out

to developing countries, specially to China resulting in the

current state of affairs. It not only made the US indebted to

China for billions of Dollars but also brought in the high

unemployment rate which is a major cause of concern for

President Barack Obama. In 2007 alone, USA lost 374,00

jobs based on goods producing industries

(source:www.chroniclesmagazine.org) .On the other

hand, China did everything it could to promote

manufacturing and exports in the country. It could attract

huge foreign direct investments and companies moved

their production base to China attracted by the low wages

and incentives provided by the Chinese government.As a

result, the balance of trade is skewed unfavorably

towards the US. If the American economy could do well by

merely focusing on services it would have done so.

Unfortunately, this is not the case. Growth of

manufacturing not only contributes directly to the

economy but also creates services, thus, indirectly

bringing about a growth in services sector too. If a factory

is set up for manufacturing a product it automatically

creates a demand for providing services like

transportation and warehousing. The US probably failed

to realize this. In India, the government has realized the

importance of manufacturing and formulated a

Manufacturing Policy for the country.

Firm LevelApart from the role of Operations Management at the level of economy of a country, its role at the level of business organizations is not difficult to understand. The relevance of studying Operations Management at firm level can be studies with respect to factors which are internal to the firm and those factors external to the firm. Internal to the firm: Michael Porter, in his Value Chain Model, has divided activities in business organizations into Primary and Secondary activities and he has included Operations among the Primary activities. Since Operations creates products or services it is actually the backbone of any business firm. It is the reason for existence for Finance, Marketing and Human Resources functions. It would be strange if the students of business management did not understand basic operations of a firm. Operations of a firm require huge investment both in terms of fixed costs as well as working capital. Understanding these operations and improving them can substantially affect the bottom line of a company. The concepts taught in Operations Management find application in other functions too. Take for example, the concept of process management. Processes exist in all departments of a firm, not only in Operations. A

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slicing and dicing, drilling down and across the wide

database to filter out the information and generate

the useful reports. These options are provided in

the BI tool. Visualizations in the dashboards makes

BI more useful tools for managers preparing for

S&OP meetings.

BI allows communicating and helping people; the

most important part of the S&OP. Business

intelligence empowers employees who are involved

in the S&OP process. It eventually suggests fewer

problems for S&OP interlock making it easier to

arrive at consensus during S&OP.

Framework for implementation of CPFR and BI in

combination with S&OP:The system with the S&OP can be improved greatly with the implementation of the CPFR and BI. Quite a few researches have been done on the synchronization of the CPFR and S&OP. At the same time synchronization of BI tool with these functions increases the efficiency of the system impressively. The suggested framework is as shown in figure.

CPFR schedules must be in sync with the monthly cycles of the S&OP meeting and demand-supply management. The demand planning for each customer segment should be taken into consideration using the CPFR collaboration with Retailers. POS data should form the basis of the forecasts. Business Intelligence tool should be implemented to collect the data (online servers). Functional divisions like marketing, operations, Demand Planning, etc. should use the same data obtained by BI system. The Finance Pre-S&OP should be carried out for the reconciliation purpose. The formal S&OP meeting and aggregate level demand representation will make the organization capable of generating the consensus demand plan which can be used for the further MRP (Material Resource) Planning Procedures.

Conclusion

S&OP is crucially important process for every

organization. Nearly every successful organization

follows it. But if it is not carried out properly and

hidden challenges are ignored then it becomes

difficult to achieve the desired results. So the

improvement of the S&OP process must

be continuous for the sustainable

operational management. At the same

time various functions that can be

integrated with S&OP for improvement

in the performance of the organization

must be combined and synchronized

with S&OP. This will make sure that with

the change in the technology the

organization is changing & is capable of

enhancing its S&OP process for better &

sustainable performance.

ReferencesBower, P. (2005). 12 Most Common Threats to Sales and Operations Planning Process. Journal of Business Forecasting

S & OP

Finance Pre S&OP

Sales Marketing Demand Planning

Product/

Brand Management

CPFR

Customer trends of POS Data representing

Demand

Demand Planner

Customer Segment 1

Demand Planner

Customer Segment 2

Demand Planner

Customer Segment n

Business Intelligence

Consensus Demand Plan

Figure. 3. Monthly Synchronized Schedule of S&OP & CPFR with the help of BI

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OpsessiaClass Room

customer group have to participate in the joint

responsibility of S&OP so that the data collection

for demand management is uniform for a particular

segment with no variations and can be aggregated

to calculate the aggregate demand and

corresponding supply capacity at S&OP level as

shown in fig.1.

The study conducted

(Williams) on CPFR and

S&OP synchronization

suggests that in only 10

months, the forecast

accuracy was improved

from 27% to 70%. It

suggests that the

efficiency of the

organization increases

with this potent

combination of CPFR

and S&OP.

Optimization of Output using BI tool

Business intelligence/ Analytics collect the

information from all the parts of an organization

and allow top management executives to get the

required analysis reports using data mining.

Following features make BI a tool

that could be used by executives

involved in S&OP process for the

efficient use of data spread in the

organization by analyzing it.

Advantage of BI over ERP: Unlike

the occurrence of the different

number under the same heading

in ERP, BI assures that the data

used across the organization is

same. Importantly the use of

single value of a KPI or

component helps the organization

to reduce the conflicts during

S&OP. Multiple values in ERP may

have a negative effect on the improvement efforts

of S&OP by the organization.

Also ERP does not provide the options such as

Figure. 2. Using BI for S&OP and its improvement

Opsessia

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good Finance Manager or a good Marketing Manager should also be a good process manager. However, senior people in Finance or Marketing may know a lot about their respective fields but are not very good at managing processes. Similarly, the concept of bottlenecks can be applied to improve the functioning of any department. Sadly enough, the application often remains limited to the Operations function where people are more aware of the concept. A third concept is quality management. Quality is not only required in the final product or service but also in the way bills are passed by Finance function or the way orders are processed by Marketing function.

External to the firm: Firms need to have a strategy to handle competition. An operations based strategy can help a firm to not only establish itself but also take competition head on. According to Hayes and Upton (1998) superior operations effectiveness based on capabilities that are embedded in the people or processes, becomes inherently difficult to imitate. Firstly, an operations based strategy is not very obvious to competitors for quite some time. Secondly, by the time the competitors come to know of the strategy the firm has already gone down the learning curve and developed capabilities which make imitation difficult. Thus, it provides sustained competitive advantage to the firm.

Upton and Hayes provide many examples how small companies have successfully taken on competition in their fieldsby having an operations based strategy. Two such prominent examples are those of South West Airlines and Wal Mart. South West Airlines began operations in 1971. With a clear operations strategy focused on customer service, gating operations and human resources the airlines developed superior operations and in 1992 it was the only American airlines which was making profit. Any attempt by competitors to imitate its operations based strategy failed. Similarly, Wal Mart became a public company in 1972 with just 30 stores. With an operations based strategy, it grew to about 650 stores in a little over ten years. It used computers to track sales and co-ordinate replenishments. Rival firm K Mart,which at one time was much larger than Wal Mart, attempted to imitate this strategybut failed.

Operations form an integral part of any firm. In fact, it is the very reason for other functions to exist in the business world. Finance, Marketing and Human Resource strategies are meant to compliment an Operations strategy and not vice versa. It is high time that our B-schools as well as the students studying in these schools realize the importance of this subject so that the country moves towards excellence in firm based operations which can fuel the growth of the economy of our country.

References1. Hayes, Robert H and Upton, David M

(1998), “Operations based strategy”, California Management Review, Volume 40, No. 4, pp. 8-25

2. www.chroniclesmagazine.org

Dr. SiddharthVarma

Professor, IMI

Specialization

Educational Qualifications

Interest Area

Faculty Profile

Quantitative Techniques & Operations Management

B. E, M Tech, MBA, Ph.D

Supply Chain Management, Technology Management

Professor SiddharthVarma did his B. E. in Mechanical

Engineering from the erstwhile University of Roorkee

(now IIT, Roorkee) in 1985. He did his M Tech from Indian

Institute of Technology, Delhi in 1987 and completed his

Masters in Business Administration from Asian

Institute of Technology, Bangkok in 1993. He obtained

his Ph D from IIT, Delhi in 2008 in the area of supply

chain management.

Faculty Room

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optimization.

3) S&OP document must be used for each and

every process requiring the data about

sales/operations or financial plans. It must

be used as a master document in the

organization. It should not be redundant or

substitutable.

4) Every employee in the organization must

participate towards the development of

S&OP if a specified process is supposed to

be done by him/her. Right people must

present right work at the right time with

clarity about their activities and roles.

5) Accurate data must be used or obtained by

using formatted data obtained from

shipping schedules, forecasted sales,

warehousing, production or from other

operational management processes in the

organization.

6) Use of collaborative platforms increasing the

frequency of the interaction between the

people to share the structured information

is necessary for success of S&OP and proper

maintenance of master data for getting

accurate output.

S&OP & other advanced functions and tools

With the advent of the technology and revolution in

distribution and logistics, Sales and Operation

Planning needs to be combined with other

application functions to improve the performance

of the organization in the view of the increasing

competition.

Synchronization with CPFR

The famous Collaborative Planning, Forecasting and

Replenishment (CPFR) concept used by Wal-Mart

(1995), P&G and others, is a function that has

potential to streamline the organizational

forecasting and eventually helping S&OP to increase

the clarity and performance through different ways.

In CPFR the burden of replenishment is on the

collaborative partnership of the customer and the

supplier. Thus, the retailer's point-of-sales data

(POS) data is used for forecasting. Promotions on

sales, exception items, major customer relationship

maintenance, etc. issues are handled collaboratively

& resolved. When it comes to organization of

supplier we can say that S&OP plays a major role in

breaking down internal barriers. Thus these two

functions can work simultaneously to increase the

Supply chain efficiency.

Synchronizing CPFR and S&OP activities will lead to

the sharing of information from both the functions

and input to each other for better performance.

The accurate forecasts using POS data and periodic

update about inventory from CPFR function is used

as input for the S&OP activities. The market trends

can be studied at CPFR end to use it as the indicator

of market conditions. The decisions taken at the

S&OP are then implemented at retailer levels like

promotions, operations management related

decisions, etc.

The monthly schedule of CPFR and S&OP must be

tightly coordinated and coherently maintained by

adhering them together. Week 1 activities of CPFR

activities must adhere to week 1 activities of S&OP

also Week 2 activities of CPFR activities must

adhere to week 2 activities of S&OP and so on. The

schedules of both functions must be aggressively

adhered to get efficient output.

The demand planners who are involved in the CPFR

process and dealing with different chains or

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India: An emerging face as a Global Supply Chain Management Hub

When it comes to producing products at low cost and

higher quality, it's a common notion for manufacturing

firms to think of Japan or China. While manufacturing

products, the three important aspects on which a plant

location is decided is the cost, quality and delivery. China

and Japan has proved their leadership in producing high

quality goods at a lower cost and maintaining a stringent

timeline. All this has been made possible through years of

research, fine tuning in Operations and Supply Chain

Management, through initiatives like TQM, Kaizen, Six

Sigma, Lean manufacturing and many other operational

excellence practices. As a result these countries have

emerged as a preferred destination for manufacturing

firms and have emerged as the leading exporters in the

world along with other developed nations like Germany,

USA and European Union. thIn 2010, India ranked 17 overall in total exports to the

thworld. However, India ranked 7 in the world for total

vehicle production in year 2010.

The prime reason for India being on the top of the charts in

Automobile production is the increasing demand for 2 and

4-wheelers in India. However traditionally in Automobile

sector India was never considered as an exporting country.

All the indigenous automobile manufacturers usually used

to cater to the domestic demand and designtheir

Operations and Supply Chain management accordingly.

However this scene is changing and that too rapidly. With

improvement in Infrastructure, favourable central and

state government policies and the opening up of the

economy has caused many firms to rethink their supply

chain management strategies. The following two articles

which appeared in the Economic Times on the same day rd(dated 3 Oct 2011) are the proof of the new supply chain

management strategies adopted by Global Automobile

manufacturer in India.

The New Operations Strategy

The automobile demand for 4-wheelers and commercial

vehicles like trucks and goods

carrier are increased manifold in

India. The Automobile industry in

India is one of the largest in the

world and is also one of the fastest

growing industry globally. India's

passenger car and commercial

vehicle manufacturingindustry is

the 7th largest in the world, with an

annual production of more than

3.7 million units in 2010*.

According to recent reports, India

is set to overtake Brazil to become

the sixth largest passenger vehicle

producer in the world, growing 16-

18 per cent to sell around three

million units in the course of 2011-

12*. In 2010, India emerged as

Asia's fourth largest exporter of

passenger cars, behind Japan,

South Korea, and Thailand.

With increase in domest ic

demand, global automobile

manufacturers are rethinking their

Supply chain strategy and are

s e a r c h i n g f o r i n n o v a t i v e

techniques to take advantage of

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Abstract:

Supply chain does not sustain only on the

coherence and synergies between the external

parties engaged in the value chain. The

understanding of the various department oriented

issues need to be considered to unlock the

potential of the organizational efficiency and

productivity. The intra-organizational balance

pertaining to the issues of the operations in the

organization can never be handled without the

effective integration and cross-functional teams

(Oliva, 2006). Sales and Operations Planning makes

it possible to unleash the organizational power of

handling the problems effectively for excellent

demand-supply management. A study done by

Aberdeen Group in 2008 suggests that the best in

class companies implementing S&OP, were having

2.5 or 6 times better KPIs than that of the other

companies. Paper uses concepts and small cases to

discuss how Sales and Operations Planning is a

fundamental that still works best (Stahl, 1999) and

can be greatly improved with the advanced

functions & tools like CPFR& BI.

Are you doing S&OP properly?

Nowadays, nearly every successful company

working with excellence in the Supply chain

management performs Sales and Operations

Planning (S&OP). S&OP is the single most critical

competitive weapon that can ensure profitability

with right selection of the channels and products

for the right customers. But often it is found that

the S&OP is not prepared or improved in the way it

should be. Sometimes it may be because of

inappropriate ways or improper choice of the tools

used to prepare S&OP making it more cumbersome

and laborious. The research (Joseph, 2009) shows

that 70% of the organizations will be changing their

technology and are on the verge of enhancing their

S&OP process in near future. It indicates that the

S&OP needs to be improved and enhanced

continuously and is necessary for the organization.

At the same time, the opportunities and threats

related to S&OP should not be overlooked.

The case Elkay Manufacturing (Cary Wood, 2002)

studies the adverse effects of competitive

environment in the market. The need for

improvement made the Elkay managers think about

the alternate ways to improve the organizational

performance in the market by increasing the

involvement of the top management. Finally it was

revealed that S&OP provided Elkay a “one-plan

process” which was the key for the success

revealing the important principles for S&OP, which

can be followed by an organization to strengthen

existing S&OP as follows-

1) Top management is the one who should

lead the S&OP implementation and

assessment. Employees in the organization

must be aware of S&OP & their roles.

Executive S&OP champion must be an

influential personality and must have

experience in demand or supply

management at higher level in the

organization.

2) Resource effectiveness must be based on

the multi SBU combination consisting of

supply chains with the focus on the profit

Improvement of S&OP and its Synchronization with advanced functions:A key to sustainable operations management

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the Indian experience in automobile manufacturing and

favourable government policies by entering into JV with

Indian partners. With over 23 companies producing over

98 brands/models of passenger vehicles in India and 23

companies producing commercial vehicles in India, the

competition in Indian market is fierce.

As a result of such large number of brands coupled with

lower aggregate domestic demand (even though %

growth is higher) the demand of automobiles per brand

gets distributed, with domestic brands enjoying a higher

market share due to higher penetration and customer

confidence. For foreign brands to cater to the small but

ever growing customer demand, setting a small to

medium scale plant would be considered as a viable

option in a short run. However setting a small to medium

scale output plant to meet its current mediocre demand

for medium to h igh pr iced veh ic les would

jeopardisecompany's long term plans and objectives of

growth. On the contrary setting a large scale

manufacturing plant with large production capacity would

result in higher initial cost and excess production.

In such difficult situation, Operations Manager went

beyond the obvious and sought to take advantage of

liberal Indian Export policies and liberal import policies of

countries like those in Middle East, Africa, South East Asia

and South Asian regions. Companies like Nissan and VE

(Volvo-Eicher Motors JV) have setup their large scale

production plants in India to cater for future rise in

domestic demand for automobiles and anticipating

growth in domestic automobile market. At the same time,

the current excessfrom the production was exported to

the countries like those in Africa, Middle East, South Asia

regions. These companies have worked to develop India as

a supply chain management and export hub apart from

countries like Japan and China.

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suppliers")Clearly, the benefits provided by JIT outweigh its risks by a huge margin, so how can one think of eliminating JIT as a system? However, the current set up cannot continue and organizations need to relook at their operation. The reason lies in the history of globalization. Through globalization, organizations now could exploit an opportunity to manufacture in low cost regions at a fraction of the cost which they would have otherwise incurred. Supply chains were now stretched to enable organizations to source components from different vendors across the globe and assemble them at the very end. Very soon this created concentrated manufacturing hubs on the world Map, especially in case of components. E.g.: the Guangdong province in China is responsible for 80% of the world's production of basic electronic components. Similarly Hitachi Chemicals produces 70% of the slurry used by the entire world's chipmaker's to polish their wafers. A just in time approach combined with this globalization exposes organizations to catastrophic risks as can be seen during the recent times. We need to come up with a solution that could mitigate these risks and yet enable organizations to continue reaping these benefits.

Multi-sourcing

During the course of t ime, companies started misinterpreting the JIT philosophy of reducing the suppliers. Companies started the practice of having sole suppliers to achieve economies of scale and build stronger relationships with suppliers. However, this made them vulnerable to such shocks and took away their flexibility. This also led to what is known as reverse bullwhip effect. It has become highly imperative for such companies to increase the certainty in supply by maintaining two or more suppliers which is known as multi sourcing approach. Again, multi sourcing is a strategic decision where the location of two suppliers also matters a lot in such situations of calamities. In case of Japan crisis, some companies with multiple suppliers also failed as both of the suppliers belonged to the same geographic region. De-risking can be done by having supplies from different geographic regions. Honda is a good example of such approach as they have already started expanding their base in India.

Product Configurations and marketing

With a move towards modularization and mass customization, organizations are now capable of offering a variety of product configurations without making huge changes to their operations. Dynamic pricing and flexible product portfolios could help companies such disruptions in certain cases. However, this approach finds limitations in case of critical components and products.

Emergency Stocks

It is necessary for companies to start reconsidering their emergency stocks. It is necessary to decouple supply chains at certain levels. Consider the case of emergency stocks of medicines in case of an epidemic. A pharmaceutical company is expected to ramp up its supplies by several times to be able to contain an epidemic outbreak. However, the government maintains a safety stock to ensure that enough medicines are available during this ramp up. Organizations too must start thinking in terms of these emergency stocks at least in case of certain critical components.

So, rather than having rigid supply chain following classical JIT approach, organizations need to come up with innovative customizations in JIT to counter such disruptions in supply chain.

Sandeep Borkar SJMSOM , IIT Bombay

Gaurav KawaleSJMSOM , IIT Bombay

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Moving forward we would expect to see many such

examples from other sectors of Industry, where

Operations Managers would consider India as a missing

link in their Global Supply Chain management and India

would emerge a leading Exporter of the world.

By Mithilesh Borgaonkar

He has completed his BE Electronics, from Sardar Patel College of Engineering, Mumbai

University. He has a work experience of 27 months with MindTree Ltd. after that he

stjoined IMI & is currently in 1 year PGDM, IMI, Delhi. He is also a member of Genesis, the

operations club of IMI.

References

#

*

http://en.wikipedia.org/wiki/Automotive_industry_in_India

http://en.wikipedia.org/wiki/Automotive_industry

Manufacturer Model

Indian Automotive Companies

Chinkara Motors Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster

Hindustan Motors Ambassador

ICML Rhino Rx

Mahindra Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio, XUV500

Premier Automobiles Limited Sigma, RiO

San Motors Storm

Tata Motors Nano, Indica, Vista, Indigo, Manza, Indigo CS, Sumo, Grande, Venture, Safari, Xenon, Aria

Foreign Automotive Companies

BMW India 3 Series, 5 Series, X1, X3.

Fiat India

Grande Punto,

Linea

Ford India

Figo,

Fiesta Classic,

Fiesta,

Endeavour.

Chevrolet Spark,

Beat,

Aveo U-VA,

Aveo,

Optra,

Cruze,

Tavera

Honda Siel Brio,

Jazz,

City,

Civic,

Accord.

Hyundai Motor India

Eon,

Santro,

i10,

i20,

Accent,

Verna,

Sonata Transform.

Land Rover

Freelander 2

Maruti Suzuki 800,

Alto,

WagonR,

Estilo,

A-star,

Ritz,

Swift,

Swift DZire,

SX4,

Omni,

Eeco,

Gypsy

Mercedes-Benz India C-Class,

E-Class

Mitsubishi

Lancer,

Lancer Cedia,

Pajero

Nissan Motor India

Micra, Sunny

Renault India

Fluence,

Koleos

Toyota Kirloskar

Etios Liva

Etios,

Corolla Altis,

Innova,

Fortuner

Audi India

A4,

A6,

Q5

Škoda Auto India

Fabia,

Laura,

Superb,

Yeti

Volkswagen India

Polo,

Vento,

Jetta,

Passat

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The recent natural calamities in the Asia Pacific have put up

a question mark on the very validity of JIT. Organizations

who swore by JIT for more than three decades, reaped

immense benefits from it are now questioning the

applicability and future of JIT. Is JIT the real reason for these

losses? Should an approach that has proven immensely

profitable in the past be done away with? Is JIT past its due-

date?

One of the biggest victims of the recent catastrophe in the

ASEAN countries was automotive industry - which has JIT

imbibed in its DNA.

All these losses have forced

companies to rethink on their

A Hitachi factory north of Tokyo that

makes 60% of the world's supply of airflow sensors was shut

down. This caused General Motors to shut a plant in

Shreveport, Louisiana for a week and Peugeot-Citroen to cut

back production at most of its European plants. Nissan also

encountered a similar problem when it had to cut back

production by almost 12% due to stock-out of engines.

Similar story was repeated due to Thailand floods which are a

major supplier of auto ancillary. Frost and Sullivan report

gives a picture of the impact of floods on different OEMs.

The electronics industry

hasn't been an exception to

this case. Dell is facing

shortages in HDDs supplied

by Thailand manufacturers.

Apple and Lenovo had

anxious moments in 2010

when uncertainty loomed

over supply of DRAMs for

their computers.

JIT methods followed currently. Some analysts are even

speculating it to be the end of road for JIT. However, before

making any decision or reaching any conclusion one should

go down to the very fundamentals of JIT, why did it come into

being, how it made so big?

Apart from this, JIT came with

numerous benefits like reduction in setup time, elimination

of waste, cut down in production times and more importantly

better supplier relationships. Companies started seeing JIT

as a competitive advantage.

JIT has been there since more than three decades now, much

before the advent of globalization. It is a time proven system

that enables an organisation to reap immediate benefits of its

actions. Back in the early 80's, a number of American firms

started adopting JIT manufacturing in an attempt to reshape

their manufacturing environment. An immediate outcome of

order based or pull based systems was reduction in

inventories and saved costs. This further encouraged other

organizations to adopt JIT.

In the early 90's development of EDI further improved communication between organizations making supply chains more agile and more responsive. IT tools started becoming more powerful, making supply chains more agile and efficient. In modern times, as product demand lifecycles started shrinking, just in time offered a viable alternative that could significantly reduce financial risk by postponing final assembly of the components as well as reducing inventory levels. DELL's supply chain which emerged during this time was looked upon for its flexibility and efficiency.

Just to have a glimpse of the benefits that the automotive

sector reaped because of JIT implementation, we can look at

the following exhibit.

Measures of inventory management performance used in the

analysis

(Source: John F. Kros, Mauro Falasca, S. Scott Nadler, (2006) "Impact of just-in-time inventory systems on OEM

JIT and supply chain disruptions

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to reduce their inventory stock significantly. It has

helped in achieving a continuous and smooth flow

between manufacturers' deliveries and store

replenishment without buffer stock at Retail distribution

center.

For a successful cross docking these things are essential-

1. Supply chain partners must be linked with

advanced information systems for coordination

2. A fast and responsive transportation system

3. Forecasts should be much accurate, requiring

the sharing of information

B. RFID system

RFID system consists of readers and tags capable of

storing and transmitting information, a RFID tag is

designed itself as a microchip with an antenna. This tag

is labeled to the products which are going to be shipped.

When the tag comes within the close range of the

reader, the data is captured and redirected to the

workstation computer.

RFID technology has been instrumental in improving

supply chain visibility and reducing theft and

counterfeiting.

Tracking the products through supply chain has reduced

the uncertainty risk and bullwhip effect, improved

collaboration among partners, fewer stock-out

situations, reduced inventory stocks and ultimately

increased the profit by reducing cost.

Reference

1. Srivastava/radio frequency identification

technology: The next revolution in SCM

2. Rockfordconsulting group university/ mass

customization

3. Anand Subramanyam/advance planning and

scheduling

Umesh C.S. Arya IIM -Kozhikode

11

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In an open economy, production firms are highly

susceptible to the variation in cost of raw materials and

other direct costs. With inflation rate soaring at 9-10% per

annum, it is a difficult task for Indian production firms to

maintain a stable input cost. As a result, there is constant

pressure on the margins of the firms. Achieving a constant

supply of raw materials over a period of time at a stable

cost is the most difficult task for purchasing managers.

Advanced tools like Inventory Management, Warehousing

or Price Forecasting may be used to control prices of inputs

upto a certain level. However even all these methods do

not ensure 100% surety of providing raw materials and

direct inputs at a constant price.

In such an environment, Operations Manager has very few

options from their field of specialisation to keep the

margins stable. Capital Intensive methods may be

employed to achieve economies of scale and reduce the

fixed cost. However the initial cash outlays would take the

cash out of the business making the firm more susceptible

to price fluctuations. Therefore it becomes a mammoth

task for the Operations Manager to seek methods or make

provisions for increase in the direct cost involved in

production.

Historically it has been observed that Indian firms spend

on average 7-9% of the selling price on transportation cost

as against 2.5% in USA. In case of heavy materials like Steel

or Iron, the transportation cost can be as high as 33%. The

reason for such high cost can be attributed to many factors

like state taxes, Toll tax, lack of proper infrastructure like

highways or speedways, government policies etc. The

implication of such high proportion of transportation cost

in the final price is that, a small increase in transportation

cost can cause an increase in overall cost of the product

and a large decrease in margin. Consider an example

where selling price of a product is Rs.100 with a planned

profit margin of 10%. Raw material and direct and indirect

cost would be around 80% of selling price and

transportation cost around 10% in Indian context.

Take a hypothetical situation in which the petrol and diesel

price have gone up by 50% over a period of time (as it has

happened over last few years in India). As a result the

transportation cost would increase by 50%. Even the cost

of direct and indirect materials would rise as a result of rise

in transportation cost to the raw material supplying firm.

Considering that 10% of the price is spent on

transportation by the raw material supplying firm, a 50%

increase in petrol price would lead to 5% increase in cost of

direct and indirect material. Thus with 50% increase in

petrol price, there is 75% decrease in margin of the firm if

selling price is kept constant.

If Operations Manager wants to respond to this huge

decrease in margins, he may have to increase the selling

price or reduce cost under other heads by some way. If he

resorts to increase in selling price and if there are too many

other competitors offering similar product and at similar

price, the demand for the product would go down further

adding to downward pressure not only to profits, but also

the Topline. If Operations Manager decides to reduce the

cost of raw materials, it can be achieved through three

ways

- By reducing the quality of raw materials thereby

compromising the entire product quality OR

- By further negotiating prices from suppliers. OR

- Looking for alternative materials which could be

used as raw materials. However these may involve

increased R&D cost and a complete process re-

engineering which could be costly and adding

higher initial outlays. OR Combination of any of

them Thus just by rise in petrol price, the

company's margin is jeopardised. However with inflation

Achieving Operational Excellence through Financial Instruments

Head % of selling price Actual Amount Selling price 100% Rs 100 Direct material 40% Rs 40 Indirect material 10% Rs 10 Labour (both direct and indirect) 20% Rs 20 Miscellaneous cost 10% Rs 10 Transportation cost 10% Rs 10 Margin 10% Rs 10

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However with inflation not only the petrol price, but also

the prices of all the goods and services (labour) goes up

which may put extreme pressures on the firm to

maintain margins at a constant selling price.

As the options for Operations manager are few and

difficult, is there any other easier way in which firms

can protect their margins without having to bother

about the rising cost of inputs?

Yes! There is a way to protect margins without

controlling actual input cost. But for this Operation

Managers have to think out of the field of Operations

management and enter into a world of speculation and

hedging. Operations manager can use financial

instruments like options and futures as a hedging tool to

reduce or at minimum to maintain the input cost and

thus maintain margins.

A brief overview about Futures and Options *

Futures

A 'Future' is a contract to buy or sell the underlying asset

for a specific price at a pre-determined time. If you buy a

futures contract, it means that you promise to pay the

price of the asset at a specified time. If you sell a future,

you effectively make a promise to transfer the asset to

the buyer of the future at a specified price at a particular

time. Every futures contract has the following features:

· Buyer

· Seller

· Price

· Expiry

Some of the most popular assets on which futures

contracts are available are equity stocks, indices,

commodities and currency. The difference between the

price of the underlying asset in the spot market and the

futures market is called 'Basis'. (As 'spot market' is a

market for immediate delivery) The basis is usually

negative, which means that the price of the asset in the

futures market is more than the price in the spot market.

This is because of the interest cost, storage cost, insurance

premium etc., That is, if you buy the asset in the spot

market, you will be incurring all these expenses, which are

not needed if you buy a futures contract.

Options

Options contracts are instruments that give the holder of

the instrument the right to buy or sell the underlying asset

at a predetermined price. An option can be a 'call' option

or a 'put' option.

A call option gives the buyer, the right to buy the asset at a

given price. This 'given price' is called 'strike price'. It

should be noted that while the holder of the call option

has a right to demand sale of asset from the seller, the

seller has only the obligation and not the right. For eg: if

the buyer wants to buy the asset, the seller has to sell it. He

does not have a right.

Similarly a 'put' option gives the buyer a right to sell the

asset at the 'strike price' to the buyer. Here the buyer has

the right to sell and the seller has the obligation to buy.

So in any options contract, the right to exercise the option

is vested with the buyer of the contract. The seller of the

contract has only the obligation and no right. As the seller

of the contract bears the obligation, he is paid a price

called as 'premium'. Therefore the price that is paid for

buying an option contract is called as premium.

The buyer of a call option will not exercise his option (to

buy) if, on expiry, the price of the asset in the spot market is

less than the strike price of the call. For example: Vikas

Head % of selling price Increase in cost % New Amount Selling price 100% 0% Rs 100 Direct material 40% 5% Rs 42 Indirect material 10% 5% Rs 10.5 Labour (both direct and indirect) 20% 0% Rs 20 Miscellaneous cost 10% 0% Rs 10 Transportation cost 10% 50% Rs 15 Margin 10% (75%) Rs 2.5

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Value stream consists of the value-adding activities

required to design, order, and provide a product from

concept to launch, order to delivery, and raw materials

to customers. Value stream contains several mapping

tools which are named as waste visualization tools. A

company can reduce all 7 kinds of wastes by using these

value stream mapping tools.

B. Mass customization

Mass Customization is an operational strategy with

extensive use of information technology tools and

applications which are focused on velocity and

tractability in a make-to-order process of operation,

with the aim of producing large quantities with

minimal changeovers and interruptions. Mass

Customization products are standard products,

providing a company a competitive edge by having

the capability to manufacture specialized or custom

products at the speed, volume, cost, and quality of

standard products.

Mass Customization is different from lean system;

lean system focuses on repetitive manufacturing on

the make to stock process of operation. Mass

customization is oriented towards high-volume,

product mix, adding velocity and flexibility in the

production process. It relates to environments

where a large degree of customized, or specialized

orders, offer a competitive advantage to the

company.

C. Advance planning and scheduling (APS)

An enterprise planning system utilizes planning and

scheduling techniques that consider a wide range of

constraints to produce and optimize plans based on

mathematical modeling under demand and supply

limitations and perform finite scheduling by

analytical tools to come up with a realistic plan. It is

flexible and integrated with implications of

alternative options so that the execution of plan

becomes easier and supportive to the real time

decisions.

It involves advanced information technology

knowledge, programming techniques like linear and

dynamic programming and heuristic and fuzzy based

techniques for optimal solutions.

The core benefits of APS are-

1. Increase accuracy of supply chain

performance,

2. Operate as a real-time system

3. Increases utilization of resources,

4. Enhance efficiency of asset deployment

IT applications and integration with Supply chainIT applications with integration of core supply

chain activities are playing major role in supply

chain management. Development of various

tools and software system for warehousing,

customer relationship management, material

planning and forecasting, Resource planning,

Tracking, Customer data collection has

tremendously changed the managing style of

supply chain of organization.

[Image Source:

www.tompkinsinc.com/systems/default.asp]

A. Cross docking and Vender Management

Inventory

Cross-docking is a technique whereby venders are able

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Supply chain: A chain of supplier and customer'Flow of products from suppliers to customers and flow

of information from customer to supplier' this is what

we call as supply chain. Whenever we talk about

suppliers and customers, we incline to think about

supply and demand. We can say Supply chain is a

complex and dynamic supply and demand network. The

word “dynamic” becomes important here due to several

reasons.

[Picture: Circles A, B…, E are points where they act as

supplier for later circle and customer for earlier circle]

Information Technology and Supply Chain network

optimization

Optimization of supply chain network has become

resurgent because of the kind of tools and technology

available these days. Existing Information and

communication tools can model any complex network

much better than ever before. In recent times,

companies are facing problems not in the designing of

the network but in the optimization of networks for cost

minimization, efficiency and efficacy. This neck to neck

competition has compelled companies to refine and fine

tune their past ad-hoc network.

To optimize a network, some of the critical steps to be

taken are:

1. Sources of supply need to square

2. Customer contracts and service levels to be

reviewed

3. Product mix should be optimized

4. Location, efficiency and duplication of facilities

needs to be addressed

5. Software and technology tools being used

needs to be addressed

Trends in Supply Chain management with engrossment of IT

A. Lean system and Value Stream

Elimination of waste and concept of JIT (Just in time)

comes into picture by changing the style of supply chain

management.

Lean principles focus on creating value by specifying

value added activities from the perspectives of the end

customer as well as the company.

Values are determined by:

1. Identifying all the steps

required to create value

2. Mapping the value

stream

3. Challenging every step

by repeated probing

4. Lining up value, creating

steps so they occur in rapid

sequence

5. Creating flow with

capable, available, and

adequate processes

6. Pulling materials, parts, products, and

information from customers

7. Continuously improving to reduce and eliminate

waste

Role of Information Technology in Supply Chain

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bought a call at a strike price of Rs 500. On expiry the price

of the asset is Rs 450. Vikas will not exercise his call.

Because he can buy the same asset from the market at Rs

450, rather than paying Rs 500 to the seller of the option.

However if the price of asset on expiry is more than Rs 500

(say Rs 600), Vikas can exercise his call option and buy the

asset worth Rs 600 at Rs 500 and thus earn a discount of Rs

100 if the asset was purchased at market price.

The buyer of a put option will not exercise his option (to

sell) if, on expiry, the price of the asset in the spot market is

more than the strike price of the call. For e.g.: Sharad

bought a put at a strike price of Rs 600. On expiry the price

of the asset is Rs 619. Sharad will not exercise his put

option. Because he can sell the same asset in the market at

Rs 619, rather than giving it to the seller of the put option

for Rs 600. On the contrary if the price on expiry is less than

Rs 600 (say Rs 550), Sharad can sell the asset at Rs 600 and

earn a profit of Rs 50 if the asset was sold at market price

Hedging and Operations Management

With the use of Futures and Options, Operations manager

can hedge against future probable rise in input cost by

trading in Options and futures of the related commodities

which go as an input in production cost. Even Operations

managers can trade in futures and Options of Crude oil in

commodity market to provide a cushion for effect of

petrol/ diesel price rise on transportation cost.

If Operations Manager expects a rise in cost of certain raw

materials, he can use futures and Option to negotiate a

price for future uncertain environment and control the

input cost for production. It will also help to reduce

inventory holding and storing cost as the firm may longer

need to have huge pile of inventory to cushion itself from

external uncertainties. Apart from trading on

commodities which are used as raw materials, it would be

wise for the Operations Manager to also trade in Crude Oil,

as it will help provide cushion for transportation cost in

case of oil price rise.

In many cases, firms do not directly buy raw materials

which are traded on Commodity exchange, but buy a

certain processed good from other industry as raw

materials. For example plastic polymer is not traded on the

commodity exchange. However Plastic product

manufacturing firms (say firm A) using plastic polymer as a

raw material in production of Plastic goods, can hedge on

crude Oil which is the major ingredient used to produce

plastic polymer. Thus as crude oil price rises, with a certain

market delay (cycle time), the price of polymer will go up.

However though many industries are immune to

temporary shocks due to their large inventories, long

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increase. Some part of these cost reductions will be

passed on to the customers and there by impacting the

demand for the product.

Automation: In addition to the inefficiency of the existing

distribution network, Indian logistics industry is highly

fragmented resulting in extreme competition and low

margins. Due to the small size, using any ERP solutions for

effective demand prediction would be costly affair. Hence,

most of the small & medium businesses have stayed away

from technology implementations. This impact of

inefficiency and cost burden is passed to end consumer,

either in terms of quality; SLAs or in terms of cost. With

GST, the number of warehouses will be reduced and the

suppliers would be able to think of using automation

which will deliver efficient operations and cost benefits.

Service levels: In the distribution network, service levels

will be specified in terms of number of days required to

deliver an order. Generally accepted norm is 2 days and to

meet this service level, warehouses are ensured to be

within 600Kms of distance from demand centres. Before

the introduction of GST, a demand centre very remote in a

state 'A' which is not within the acceptable distance to

meet the service level could not be served in time by the

warehouse in state A(see the figure). Because of CST, that

particular city cannot be served by the warehouse in state

'B' even though it is very near. This leads to sacrificing the

service levels at some places. With GST, this problem can

be resolved and that remote city can be served by

warehouse in the adjacent state and meet the service

levels.

Overall, introduction of GST would impact the supply

chain industry in a positive way and the organizations

which change themselves to the new structure very

quickly will have competitive advantage. Especially this is a

major opportunity for 3PL firms to gain early market and

establish themselves.

References:

1. Class notes of Logistics Management on 25-10-

2011, an elective by Prof G. Raghuram, Public

systems group, IIM Ahmedabad\

2.http://www.infosysblogs.com/logistics/2010/11/gs

t_impact_on_logistics_indust.html

About the authors:

This article is written by P. Babu Ravi Kumar,

Ravi Kumar Yadavalli & Ajay Miryala. The three

authors of this article are the second year

students of IIM Ahmedabad and have written

this article based on some class notes of an

elective called Logistics Management and few

simulation games.

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lasting price shocks can change the price of the

final product. In such case (long lasting price

shock) firm 'A' which uses plastic polymer

a s a ra w mater

ial can

succ

ess

fully

u s e

Options and f u t u r e s

to nullify the effect of increase in raw

material prices.

From the above chart, it is surprising to see

that the margins of the plastic product

manufacturing firm hedging against

petroleum prices have in-fact increased

with the increase in oil prices after period T0.

Oil forms an important component in

manufacturing polymer used in plastic. However

the firm producing polymer passes on this cost to plastic

good manufacturer after time T1. This T1-T0 is the cycle

time of inventory replenishment for the polymer

manufacturer. The price of actual polymer used to

produce plastic goods increases after time T2. The time

T2-T1 is the inventory replenishment time of the plastic

product manufacturer. However because of hedging, the

plastic manufacturer had the instantaneous advantage of

rise in crude price in the future/options market, which

increases the margins of plastic good manufacturer (firm

A) after T0. However the effect of increased margin was

nullified after T2, when the inputs cost increased. Thus

the Operations Manager could control the price of raw

materials used in processing and in addition was able to

reap temporary benefits of oil price rise by hedging.

Thus financial instruments when used for Operations

Planning and management can prove as a perfect tool

for cost optimization and margin maintenance.

The field of Operations Management and the experts in

the Operations Management should not just restrict their

focus on improving Operations process to control cost, but

also on allied branches like Finance and Marketing which

could provide important insights to Operations Manager

to help the firm sail through tough times through a

symbiotic amalgamation of tools of Operations

Management, Financial Management and other branches

of management.

References:

Financial Management

Marketing Management

HRM &other alliedbranches

OperationsManagement

Mohit KheraPGDM 2011-13IMI, New Delhi

·*http://www.rediff.com/money/2007/aug/01cspec.htm

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profitable if secondary shipping cost is more than primary

shipping cost.

With 28 states and 7 union territories in India, that

accounts to 25-40 small warehouses (depending on trade

off explained above and scale of operations) instead of 6-8

large warehouses which would be needed for geography

of this size. For some manufacturers with countrywide

operations, the warehouses are as high as 55 – 60 in

number.

Introduction to GST

From the newly proposed tax structure (GST) which treats

goods and services alike, only the inputs that affect supply

chain are reproduced here. GST is a comprehensive value

added tax on goods and services where the tax is levied on

'value added' at each stage of supply chain and provides

seamless input tax credit throughout the supply chain.

GST does not distinguish between goods and services and

the tax is collected at the point of consumption. Same

taxable value base for computing Central and State GST

hence no cascading impact of tax. There is no cascading

effect of tax on cost under GST and the tax incidence is fully

transparent. Hence the present taxable events such as

“Manufacture” in case of Central Excise and “Sale” in case

of VAT or CST will lose relevance.

Changes in supply chain due to GST

Under the tax structure proposed by GST, the tax is levied

only at the point of sale irrespective of whether it is inter-

state sale or intra-state and both the state and central

taxes are collected on the same base. The final tax on a

product would be the same, irrespective of the structure

or location of its production, procurement of inputs and

the nature and complexity of the distribution chain. This

primarily eliminates the need for having warehouses in

different states. Hence the supply chain would be

undergoing a drastic shift towards re-aligning/merging

the smaller warehouses to most productive and logical

locations - without having to think of tax burden.

With GST, the decision of where to setup the warehouse

will be guided by the distance between the manufacturing

unit & demand centres, service levels to be satisfied,

primary shipping costs, warehouse costs and secondary

shipping costs. As shown in the below figure, the primary

shipping

cost is the cost of shipping goods from manufacturing unit

to the warehouse where the secondary shipping cost is the

cost of shipping from warehouse to the retailer.

Distribution network should be designed in such a way

that, the sum of primary shipping cost, inventory cost and

secondary shipping cost should not exceed direct shipping

cost from supplier to retailer. If a warehouse is shipping to

multiple retailers, then the weighted average cost at that

warehouse should be minimized to get the optimum

distribution network. In general, the primary shipping cost

per unit is less than the secondary shipping cost per unit

because of the good quality of road transport

infrastructure between cities and the economies of scale.

In general, there should be a warehouse within 600Kms of

any demand centre (city) to meet the service level of

delivery within two days of order (industry norm).

Impact of GST

GST would force the suppliers to optimize the supply chain

and gain cost advantage. The optimization would impact

many areas and few of them are discussed here.

Cost reduction: Due to the optimization of distribution

network, the overall shipping cost of the product would be

reduced and the profit margins of the supplier would

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Making the right product at the right time and at

the right price requires adaptable manufacturing

operations management.With success in manufacturing, indeed even survival has

become increasingly difficult. Competition has intensified

from a national arena to a global scale. Product life cycles

have shrunk, yet there is an escalating requirement to

satisfy the specific and individual needs of customers.

Hence a need for Agile Manufacturing is on the cards.

Thus where once a manufacturer's success could be

measured by their ability to cost effectively produce a

single product; success now seems to be measured in

terms of flexibility, agility and versatility. That is, by the

ability to handle continuous improvements and change.

Consequently the changes in markets, customer

requirements technology have become the competition

criteria, and are now the critical factors in determining

manufacturing success. These raid environmental

changes have forced companies to improve their

manufacturing performance in conditions of increasing

uncertainty. Significantly such changes are occurring

faster and more unexpectedly than ever before. An

enterprise is confronted with a continuously changing and

unpredictable environment. Management has responded

to these competitive environmental pressures, in

particular to ensuing uncertainty and volatility by

developing new approaches, concept and methods. As

Sharp et al. (1999) put it, “there are many manufacturing

panaceas” Research by Womack et al. (1990), has

demonstrated that there are many different views about

the ways companies can improve their manufacturing

function to enhance their competitive advantage. Yet,

despite the resultant variety in manufacturing research

some recognizable tendencies are emerging. For example,

in production systems, rigid manufacturing systems are

changing to flexible manufacturing to improve the

system's ability to respond to consumers' needs. In

organization structures, large multi-level organization

structures have been reduced to single level network

structures. Concurrent engineering and virtual have been

introduced. In computer management, single task

applications have been transformed into computer

integrated manufacturing systems (CIMS). The driver of

these changes is the unrelenting evolution of competition.

Competitive advantage is soon lost and newer, sharer

techniques and technologies are honed to provide a new

competitive edge.

Real Agile Manufacturing

It is the strategic process of responding to the

competitive environment of continuous and

unpredictable change by reacting quickly and effectively

to changing markets. It takes multiple winners as an

objective, integration as the means with IT as an

essential condition and core competency as the key.

Agility is driven by competition; fragmentation of mass

markets; cooperative production relationship; evolving

customer expectations and increasing social pressures.

The core of any change includes consumer, competitor,

technology and resources. Accordingly Agile

Manufacturing has been defined in terms of the agile

enterprise, Products, workforce, capabilities and he

environment which gives impetus to the development of

the agile paradigm. The principal elements of the

definitions presented can be summarized as follows.

· Response to change and uncertainty

· Building core competencies

· Supply highly customized products

· Synthesis of diverse technologies

· Intra enterprise and inter enterprise integration

Agile manufacturing embodies the ability to cope with

change by the application of partners' core competencies

to supply customized products. It requires the synthesis of

diverse technologies within an integrated system.

Agile manufacturing is strategic processing in that it must

be deeply incorporated in the organizations development.

However different firms will vary in how they may

strategically respond to the changing business

environment. One consequence of this is that they may

use different levels of agility. From our synthesis of the

elements of agility we can recognize that here are three

distinctive levels of agility, which can be described as

elemental, micro-agile and macro-agile.

ADAPT TO THRIVE Mass-Lean-Agile-RAM

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The elemental agility uses basic resources and remains at

an individual level; micro agile crosses the organizations

involved. But organizations forms can also be viewed at

different levels, the individual level, the enterprise level

and the inter enterprise level. But our interest lies with the

most advanced form of agile manufacturing which crosses

the boundaries of the organization. It emphasises the

building of core competence to enable the agile

organization to supply highly customized products. Figure

illustrates the relationship across the three organizational

levels emphasizing the aspects of resource competence to

demonstrate the degree of agility.

There are categorical difference between mass

production, lean production and Agile manufacturing.

Lean manufacturing which emphasis the efficient use of

resources is simply an enhancement of old mass

production methods. In contrast new Agile manufacturing

systems break out of the mass production mold to

produce highly customized products.

· Lean production is regarded by many as simply an

enhancement of mass production methods

whereas agility implies breaking out of the mass

production mold and producing much more

highly customized products.

· In a product line context, Agile manufacturing

amounts to striving for economies of scope rather

than economies of scale. Ideally serving ever

smaller niche markets but without the high cost

traditionally associated with customization

· Agile embodies such concepts as rapid formation

of multi-company alliances or ever virtual

companies to introduce new products to the

market.

· A lean company may b thought of as a very

productive and cost efficient producer of goods

and services

· Agile company is primarily characterized bas a

very fast and efficient learning organization.

Core competency is the key

Resources of single companies are no longer sufficient or

adequate for each step of the value creation process. Thus

the traditional value added chain is reshaped, so that

companies now concentrate on their core competence

(those aspects which they can do very well), while other

functions or services are produced by their partners.

Different sorts of core competencies are combined by a

specific bundling of success-critical abilities. Prahalad and

Hamel (1990) defined core competence as “the collective

learning focused on developing and coordinating a diverse

range of skills and capabilities. These are like the hidden

roots of a tree, giving corporations their strength.

Integrating core competencies requires collective

organizational learning, deep involvement and

commitment to cross the enterprise boundary. Short life

of modern enterprises can be attributed to weakness in

learning competence of any organization.

Conclusion

With rapid changes taking place in the global market, it

becomes clear that manufacturing enterprises working on

a base of Agile manufacturing become leaders but, the

effect of this new managerial system, new approaches to

technology and new ideas need to be continuously

developed. Manufacturing has evolved from Mass

manufactur ing , lean manufactur ing to Agi le

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According to the concepts of the operations, the design of

distribution network for a logistics company is a network

design problem. That network has to be optimized to meet

the demand at different nodes of the network for the

given distance between the nodes, cost of goods transfer

in the pipeline and cost of warehousing. But, in India,

historically, the supply chain or logistics of any

organizations are driven by tax considerations rather than

the operational efficiency. Introduction of Goods and

Services Tax (GST) will change the situation and the

logistics industry is expected to go through a major

transformation providing opportunities for new players

and new business models.

Current scenario

The current tax structure is quite complex - there are

central level taxes in form of excise, customs duty and

Central Sales Tax (CST@4%), and then there are varying

state level taxes in form of VAT and other levies like cess

etc. The problem is that, state level taxes are applicable on

top of central taxes which mean the supplier is paying

taxes on taxes.

Tax structure has created an interesting exemption from

central tax if there is a stock transfer between the states

where as any inter-state sale is taxable. For example, an

organization having warehouses in two different states

can transfer the stock between the two warehouses

without paying CST and get away by paying only state taxes

after selling the goods in that state. But any sale between

the two states will be taxable under CST and state taxes are

applied over the CST.

Now, the only way to avoid this double taxation is to create

warehouses in every state and perform stock transfer

between inventory stocking points. Hence, most

industries - like manufacturing, FMCG and third party

logistics players - generally have warehouses/offices in

each state to reduce tax burden of Central Service Tax

(CST). Thus, distribution network planning is more driven

by logic of saving taxes, rather than achieving operational

efficiency.

The network planning is divided into two stages where you

first decide whether to have a warehouse in that state or

not and if yes, then decide where to setup the warehouse

in the state. The decision of whether to have a warehouse

in a particular state or not is simply a trade off between the

CST incurred if there is no warehouse and inventory costs

incurred if there is a warehouse. Both the tax payable and

the inventory costs are driven by the demand in that

particular state. As shown in the figure, only if the total

demand in the state is greater than d*, it is profitable to

setup a warehouse in that state. When the demand is less

than d*, it is profitable not to have a warehouse in that

state as the cost of tax is less than the inventory cost.

After deciding to setup a warehouse in a state, now the

decision of where to setup in that state should be

addressed. As shown in the figure, majorly two strategies

are followed for this problem namely, entry point strategy

or centre of gravity strategy. Primary shipping cost

(shipping from factory to warehouse), warehousing cost

and secondary shipping cost (shipping from warehouse to

retailer) are the decision variables here. The total

weighted average cost of shipping (demand at retailers are

the weights) determines the strategy to be followed. Entry

point strategy is profitable if the secondary shipping cost is

less than primary shipping cost and centre of gravity is

Impact of GST on Supply Chain Industry

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going through a gloomy phase with many major

companies incurring losses and defaulting on dues. To

invest in advanced technology may seem like a luxury to

them in these turbulent times. However, it should be

understood that these Green initiatives are for the long

term and for a better future, both for the industry and for

the society as a whole. This paper identifies some key

operational strategies and methods to address the issue of

the transformational initiative of going green. It should be

understood that the best place to improve and implement

changes is in the core operations of the particular Airline

corporation and the Industry as a whole. The need for

researchers and producers in the field of renewable energy

especially aviation grade biofuel also calls for utmost

attention.

1. 2 million tons per year: A performing biofuels

supply chain for EU aviation. (2011). Retrieved

08/07/2011, from

http://ec.europa.eu/energy/technology/initiatives

/doc/20110622_biofuels_flight_path_technical_pa

per.pdf

2. Advanced Biofuels Project Database. (5/3/2011).

Retrieved 7/22/11, from

http://biofuelsdigest.com/bdigest/2011/05/02/adv

anced-biofuels-capacity-to-reach-4-3b-gallons-

by-2015-128-projects-latest-database/

References

3. Deutsche Lufthansa AG in Travel and

Tourism (World). (04/2011). Retrieved

08/05/2011, from

http://www.euromonitor.com/deutsche-

lufthansa-ag-in-travel-and-tourism/report

4. Deutsche Lufthansa AG: Company

Profile. (7/27/11). Retrieved 8/3/11, from

http://www.datamonitor.com/store/Produc

t/deutsche_lufthansa_ag?productid=81313

A31-5353-4DF7-9388-B6DE7B935749

5. Barbout, C (2006). Trends in European

Airline Markets: Competition,

Concentration and Strategic Behaviour.

Journal of the Brazilian Air Transportation

Research Society, 2(2),

6. Clement, S, Wilkins, M, & Beyzh, M

(02/18/2011). Airline Carbon Costs Take

Off As EU Emissions Regulations Reach

For The Skies. Retrieved 08/23/2011, from

http://www.environmental-

finance.com/download.php?files/pdf/4d663c478e

fb8/Airline%20Carbon%20Costs%20take%20Off.

pdf

7. Mayor, K, & Tol, R S J (2010). Scenarios of carbon

dioxide emissions from aviation. Global

Environment Change, 20, 65-73.

8. Miyoshi, C, & Mason, K J (2009). The carbon

emissions of selected airlines and aircraft types

in three geographic markets. Journal of Air

Transport Management, 15, 138-147.

9. X.D. Li, C.S. Poon, S.C. Lee, S.S. Chung and F. Luk

(2003). Waste reduction and recycling strategies

for the in-flight services in the airline industry.

Resources, Conservation and Recycling, 37, 87-99.

Joydeep Barman IIM - Lucknow

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Manufacturing and now the world prepares itself for Real

Agile Manufacturing which focuses on investing in core

competencies, virtual organizations and sharing all types

of resources and to satisfy customers in terms of service

and quality. Hence IT is an essential condition and the key

to many problems faced. For the experts developing Real

Agile Manufacturing may focus on the following major

issues

· A methodology for evaluating potential

partner for RAM based on core competencies

and market forces needs to be developed

· Managerial model and organizational

characteristics of RAM

· Importance of Social Capital under the

new technique of RAM

· Development of new supply chain models

and to create techniques for measuring

performance and evaluating risk in the new

agile systems.

References:

· Small, A.W. and Downey, A.E., (1996), ̀ `Orchestrating

multiple changes: a framework for managing

concurrent changes of varied type and scope'',

Proceedings of IEMC 1996 Conference on Managing

Virtual Enterprise, Canada, pp. 627-34.

· Thompson, J. (1967), Organisation in Action, McGraw-

Hill, New York, NY.

· Sharifi, H. and Zhang, Z. (1998b), ``Enabling practices

assisting achievement of agile manufacturing'',

Proceedings of the Sixth IASTED International

Conference, Robotics and Manufacturing, July 26-31,

Banff.

· Drucker, P.F. (1968), ``Comeback of the entrepreneur'',

Management Today, April, pp. 23-30.

· Kidd, P.T. (1995), Agile Manufacturing, Forging New

Frontiers, Addison-Wesley, London.

· Dove, R. (1994-1996), ̀ `Agile and otherwise'', series of

articles on agile manufacturing, Production Magazine,

November to July.

· Hamel, G. and

Prahalad, C.K.

( 1 9 9 4 ) ,

``Competing for

t h e f u t u r e ' ' ,

H a r v a r d

B u s i n e s s

Review, July-

August, pp. 122-

8.

Abhinav SinglaIMI, New Delhi

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Millions of vehicles ply the Delhi Noida Toll Bridge everyday but few people are aware of the operating structure behind the development of such a humongous flyover. Delhi Noida Toll Bridge was the first BOT (Build- Operate- Transfer) project undertaken in India.Build-Operate-Transfer is a type of Public Private Partnership (PPP) of finance and operating approach that has become popular mainly in the privatization of infrastructure in the developing countries. In India and other developing countries, rapid economic growth is more than infrastructure supply. Governments of these countries are unable to fund vital infrastructure development, so they are increasingly turning to large international firms for finance through concession contracts such as Build-Own-Transfer (BOT). Such firms generally have a greater credit rating and financial capability to finance the large scale projects. If executed properly, BOT results in a win-win-win solution for governments, private sector firms, and the community at large. From the perspective of the government, private sector participation offers off balance-sheet funding at the same time bringing the advantage of cost and resource efficiency to the project. As far as private players are concerned, BOT projects help them to expand market share and earn higher returns. Finally, because there exists a user -payer system, the common man does not have to bear the burden of increased taxes.The globalization of trade has compelled countries to have adequate infrastructure in order to keep pace with other growing nations. Inefficient infrastructure

becomes a bottleneck and thus creates a need to meet the infrastructure chasm or to turn existing infrastructure more efficient in many developing countries. Canning and Pedroni have studied the effects of efficient infrastructure on per capita income of countries over the period 1950-1992. The results of this study provide clear link between infrastructure and long run growth.What are the critical factors with BOT??

As BOT projects are high risk investments, may result in political and economic instability, social, technological and other non-financial factors can have implications on the financial viability of the project over the long term of investment. Hence a holistic assessment of the financial as well as non- financial factors of the concerned project needs to be undertaken for effective decision making.

Selection of BOT projects is critical. If the pre-planning stage of the project is done inaccurately, the consequences may prove to be disastrous. Such as Chinese first water supply BOT projects – No.6 Branch of Chengdu Water Supply Factory, the inaccurate forecast of the market demand in project planning process led to the oversupply. However, according to the agreement between the government and the project company, the government had no choice but to accept all water, which brought phenomenal loss to the government.

The most important factor in the BOT projects is to perform a project feasibility s t u d y a n d e v a l u a t i o n thoughtfully, which may include economy, conditions o f c o n s t r u c t i o n a n d production, market, law, technology, environment etc. The study of BOT projects is different from others. Besides the law permission, the most crucial thing is the evaluation of finance and of the national economy. The BOT project is approved by the government if s u c h e v a l u a t i o n s a r e satisfactory and acceptable.

Build Operate Transfer- A new schema in Infrastructure Development

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3. Waste Management

3.1 In-Flight Waste: Numbers tell the whole

story

3.2 Operational Aspects

The average airline passenger generates 1.3 lbs. of waste 8,9per flight . There are many items in the current in-flight

services' waste streams that can be minimised and

recycled. Following is the breakdown of the types of waste,

which came to light after a study, which was conducted on 9Cathay Pacific flights .

Based on current recycling opportunities, clean paper

items, transparent Polystyrene (PS) items and aluminium

cans have been identified as the most feasible recyclable

materials. These materials can be separately collected on

board for the recycling programme. The recyclable items

can account for up to 45-58% of the total galley and cabin

waste from in-flight services. The waste reduction and

recycling programme has the potential to contribute

greatly to local and global environmental protection, and

to save substantial operation costs for the airline industry.

According to “A Green America” report, no airline

provides good public information about its recycling

programs. Their websites, sustainability and annual

reports all lack transparency and details about the waste

they generate and how they are addressing it. Major

Airlines should take the first step in this regard and

differentiate itself from its competitors by providing a

regular report showing metrics on how it is progressing

toward its recycling goals.

Airlines can overcome any of the challenges by creating in-

flight recycling programs, including employee education

and involvement, knowledge of the type of waste

produced, and a time and space efficient system.

Additionally, they should increase the awareness about

recycling among the passengers. A video could be shown

to passengers about recycling, hoping that it will spur

participation in onboard recycling. The menus to be used

on flights can be printed on recycled paper with soy ink

and coffee can be served in cups made of post–consumed

recyclable paper. It can also offer local, organic, and

sustainable foods on flights.

We observed from the study of European Airlines that they

are doing everything possible to account for lowering their

carbon emissions consequent to the introduction of airlines

industry in ETS policy. Biofuel can be considered as the

most significant of them all. India is growing fast in the

Carbon Trading sector, which is even traded in the Multi

Commodity Exchange. It is also the first exchange in Asia

to trade Carbon credits. Hence reduction of Carbon

emissions is soon to catch attention for all the Indian

industries. At present times, the Airline industry in India is

Conclusions

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Consequent to the high prices of biofuel currently, if the

same quality of required biofuel can be procured from low

cost countries matching with the destination of the flight, it

will add cost benefit to the bottom line. The below

diagram, Fig. 2 shows a depiction of probable

collaboration with international producers.

India lags behing in the research and development of

producing aviation grade biofuel. Not only is the

technology missing but also the current production

capacity of biofuel is suited only for research needs and

cannot be commercialized.

Though this is a very viable option towards a greener and

sustainable future, however it has some challeneges which

needs to be handled and overcome carefully.

All the airlines currently use paper boarding passes

including some which provide mobile check-ins for its

customers. It can be proposed to implement use of Smart

Cards instead of paper based boarding passes for Frequent

Flyers of the specific airlines for domestic services. A smart

card reader will be installed at airports enabling customers

to automatically check in at the airport by tapping their

frequent flyer smart card on the reader. The card reader

will use Near Field Communication technology so that

installation is smooth and less disruptive.

1.2 Risks and Opportunities

2. Next Generation Check-In: Smart Cards instead of Boarding Passes

Risks

· Bargaining power of suppliers

· Increasing demand

· Less number of suppliers

· Uncertainty of biofuel prices

· Issues raised by Activist groups towards

indirect impact on agriculture for using biofuel

· Supply and Demand gap

· Government policies and regulations

Opportunities

· Most viable way to reduce carbon footprint

· Portray as a Green Brand among customers

· Save Costs from buying additional Carbon

Credits

· Extra Carbon Credits can be traded at

profitable prices

· Creation of Goodwill to the society and

Governement

· Collaborate with international biofuel

producers

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Value Engineering is an important means of quality improvement. Value Engineering analyzes the function and the cost of the project systematically. The basic formula of Value Engineering:-

V= F/C

Where-F=FunctionC= Cost

It is difficult to reach the goal of the construction project because of the large scale, big ticket investment, long period of construction, technical complexity and implementation difficulties etc. Project Controlling is a management-organization model which can prove to be helpful here. With the modern information technology, it conducts information collection, processing and transmission, which can guide and control the material flow of the project construction, and hence support the top management in decision making to plan, coordinate and control the project.

Model for Project ControllingThe following figure explains how an infrastructure construction project in India is undertaken-

THE CHALLENGES FOR INDIA IN INFRASTRUCTURE DEVELOPMENT

1. India's banking system is regulated Reserve Bank of India, which sets interest rates. The financial condition of the country prevents the Indian government from opening the sector to foreign competition. Moreover, loans are often sanctioned on the basis of political connections. In many cases, bank branches extend loans to firms controlled by local officials, even during periods when the central government is attempting to limit credit. Such a system promotes widespread inefficiency in the economy because savings are generally not allocated on the basis of obtaining the highest possible returns.

2. Rapid economic growth cannot be sustained without proper transportation and reduction in pollution level. Also India's investment in infrastructure development has not been able to keep pace with its economic growth.

3.The legal issues in India also pose a problem as widespread government corruption, financial speculation, and misallocation of investment funds. In many cases, government 'connections', not market forces, are the main determinant of successful firms in. Many foreign firms find it unviable to do business in India because rules and regulations are not transparent, contracts take time to get enforced, and intellectual property rights are not protected because of the lack of an independent judicial system. The lack of effective rule of law, current ownership of land, and widespread local

FinMin to monitor

large

infrastructure

RBI Allows

Banks & NBFCs

To Sponsor

Infrastructure

Debt Funds

PPP

1922

21

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reduce the consumption of Jet Fuel by adding 10% Biofuel

to the Jet fuel consumption till 2020. The Fuel consumption

of the German Airline major, Lufthansa Group for the year 3,42010 was 8,459,255 tonnes . In the year 2020, the Jet fuel

requirement as per estimate will stand at 11.368 million

tonnes. For a target of 10% Biofuel, the requirement of

Biofuel would be 1.137 million tonnes for Lufthansa alone.

Lufthansa has been the pioneer to set an example by

undergoing through a contract of procuring aviation grade

Biofuel from Finland's Neste Oil. Neste Oil has

commercialized the production of aviation grade biofuel

using its innovative process named as NExBTL. Neste Oil

has a current production capacity of 380,000 TPA from its

Finland plants.

The new Singapore Plant, the largest production facility of

Biofuel with an annual production capacity of 800,000 TPA

and an upcoming facility with a similar capacity in

Rotterdam, Netherlands will take the total production

level of Neste Oil to around 2 million TPA. This capacity of

Neste Oil will be sufficient to fulfill the demand of

Lufthansa.

However, the scenario is not the same for all the other

Airlines. Besides procuring the biofuel locally it is highly

advised to collaborate with international biofuel

producers. Most of the major Global airline companies

have operations worldwide in almost all major countries.

“Going Green” Operational Strategy of European Airlines – a lesson for the India's Airline Industry

Introduction

1. Use of Biofuel

1.1 Strategic Sourcing of Biofuel

The aviation sector is a growing field globally. The growth

is very high in emerging markets especially Asia and low

in the developed countries. However, the growth in the

developed countries is not insignificant. With a high

growing potential of this sector, it is expected that the 1global growth will sustain at 4.5% till 2050 . With such a

growth rate, the CO emissions are also expected to 2

increase substantially. To address this issue, aviation sector

has started to rejuvenate their operations, improve old

fleet, and procure fuel efficient aircraft. These measures

can only address the emission issues to some extent but

still the carbon emissions are considered to increase to 1three times that of current figures by 2050 . European

Union legislation has recently taken the initiative of

reducing the carbon emissions in the European aviation

sector and hence has included aviation in the Emission

Trading Scheme (ETS) to be initiated from 2012. This has

been implemented amid numerous protests coming

especially from the airlines operating outside Europe but

those who have a substantial number of destinations in

Europe. This means that all the Airlines having current and

future operations in Europe will be subjected to ETS and

hence improvements must be brought in its current

operations to reduce carbon emissions to the lowest level

possible. The following European Airline groups were

studied for this purpose: Lufthansa Group, Air France –

KLM Group and International Airlines Group.

Aviation Biofuel has been found out to be the most

appropriate clean fuel to replace the currently used

Aviation turbine Fuel (ATF). European Union, the

pioneer in including Airlines industry in ETS has

suggested the subsequent use of Biofuel in the daily

operations of Airlines. Many big airline companies,

namely Lufthansa, Air France, Continental Airlines, and

Alaska Airlines etc have successfully tested the use of

Biofuel and are also mixing it with conventional fuel in

regular flights. Fig. 1 depicts the long–term strategy

undertaken by some airlines to replace the use of

conventional ATF.

A primary objective of EU's major airline companies is to

Fig. 1: Strategy of European Airlines for

implementing the use of Biofuel

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India needs are more than Rs.145000 crore for the next 5 years to meet its infrastructure needs. To fund this growth, India needs to encourage foreign participation besides domestic private investment. POLICY can play a major role in this regard. Indian government has come u with its new PPP draft policy. The major initiatives undertaken in this policy are

What should Indian government do to enhance the participation of private players?

Develop the domestic debt capital market-

Infrastructure development is constrained by

insufficient funding. Therefore taking key initiatives

to open the domestic debt market by making it more

attractive to private investors can create a multiplier

effect on the infrastructure front. Utilizing the

potential of insurance sector fro risk mitigation can

play an important role in inducing private players to

invest in infrastructure development. Initiation of FDI

in infrastructure development of India should be

done immediately to overcome the shortage of

funds. If these measures including certain non

financial factors are taken are of, India will soon

emerge as a developed country.

References

http://www.pppinindia.com/draftpolicy.php

http://en.wikipedia.org/wiki/Build-operate-

transfer

http://www.seiofbluemountain.com/upload/

product/200910/2008glhy13a16.pdf

http://www.economictimes.indiatimes.com

www.financialexpress.com%2Fnews%2Fnaba

rd-funding-for-rural-infrastructure-

crosses-rs-one-lakh-crore-mark

AYUSH MANSINGHKAIMI,NEW DELHI

21

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reduce the consumption of Jet Fuel by adding 10% Biofuel

to the Jet fuel consumption till 2020. The Fuel consumption

of the German Airline major, Lufthansa Group for the year 3,42010 was 8,459,255 tonnes . In the year 2020, the Jet fuel

requirement as per estimate will stand at 11.368 million

tonnes. For a target of 10% Biofuel, the requirement of

Biofuel would be 1.137 million tonnes for Lufthansa alone.

Lufthansa has been the pioneer to set an example by

undergoing through a contract of procuring aviation grade

Biofuel from Finland's Neste Oil. Neste Oil has

commercialized the production of aviation grade biofuel

using its innovative process named as NExBTL. Neste Oil

has a current production capacity of 380,000 TPA from its

Finland plants.

The new Singapore Plant, the largest production facility of

Biofuel with an annual production capacity of 800,000 TPA

and an upcoming facility with a similar capacity in

Rotterdam, Netherlands will take the total production

level of Neste Oil to around 2 million TPA. This capacity of

Neste Oil will be sufficient to fulfill the demand of

Lufthansa.

However, the scenario is not the same for all the other

Airlines. Besides procuring the biofuel locally it is highly

advised to collaborate with international biofuel

producers. Most of the major Global airline companies

have operations worldwide in almost all major countries.

“Going Green” Operational Strategy of European Airlines – a lesson for the India's Airline Industry

Introduction

1. Use of Biofuel

1.1 Strategic Sourcing of Biofuel

The aviation sector is a growing field globally. The growth

is very high in emerging markets especially Asia and low

in the developed countries. However, the growth in the

developed countries is not insignificant. With a high

growing potential of this sector, it is expected that the 1global growth will sustain at 4.5% till 2050 . With such a

growth rate, the CO emissions are also expected to 2

increase substantially. To address this issue, aviation sector

has started to rejuvenate their operations, improve old

fleet, and procure fuel efficient aircraft. These measures

can only address the emission issues to some extent but

still the carbon emissions are considered to increase to 1three times that of current figures by 2050 . European

Union legislation has recently taken the initiative of

reducing the carbon emissions in the European aviation

sector and hence has included aviation in the Emission

Trading Scheme (ETS) to be initiated from 2012. This has

been implemented amid numerous protests coming

especially from the airlines operating outside Europe but

those who have a substantial number of destinations in

Europe. This means that all the Airlines having current and

future operations in Europe will be subjected to ETS and

hence improvements must be brought in its current

operations to reduce carbon emissions to the lowest level

possible. The following European Airline groups were

studied for this purpose: Lufthansa Group, Air France –

KLM Group and International Airlines Group.

Aviation Biofuel has been found out to be the most

appropriate clean fuel to replace the currently used

Aviation turbine Fuel (ATF). European Union, the

pioneer in including Airlines industry in ETS has

suggested the subsequent use of Biofuel in the daily

operations of Airlines. Many big airline companies,

namely Lufthansa, Air France, Continental Airlines, and

Alaska Airlines etc have successfully tested the use of

Biofuel and are also mixing it with conventional fuel in

regular flights. Fig. 1 depicts the long–term strategy

undertaken by some airlines to replace the use of

conventional ATF.

A primary objective of EU's major airline companies is to

Fig. 1: Strategy of European Airlines for

implementing the use of Biofuel

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India needs are more than Rs.145000 crore for the next 5 years to meet its infrastructure needs. To fund this growth, India needs to encourage foreign participation besides domestic private investment. POLICY can play a major role in this regard. Indian government has come u with its new PPP draft policy. The major initiatives undertaken in this policy are

What should Indian government do to enhance the participation of private players?

Develop the domestic debt capital market-

Infrastructure development is constrained by

insufficient funding. Therefore taking key initiatives

to open the domestic debt market by making it more

attractive to private investors can create a multiplier

effect on the infrastructure front. Utilizing the

potential of insurance sector fro risk mitigation can

play an important role in inducing private players to

invest in infrastructure development. Initiation of FDI

in infrastructure development of India should be

done immediately to overcome the shortage of

funds. If these measures including certain non

financial factors are taken are of, India will soon

emerge as a developed country.

References

http://www.pppinindia.com/draftpolicy.php

http://en.wikipedia.org/wiki/Build-operate-

transfer

http://www.seiofbluemountain.com/upload/

product/200910/2008glhy13a16.pdf

http://www.economictimes.indiatimes.com

www.financialexpress.com%2Fnews%2Fnaba

rd-funding-for-rural-infrastructure-

crosses-rs-one-lakh-crore-mark

AYUSH MANSINGHKAIMI,NEW DELHI

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Consequent to the high prices of biofuel currently, if the

same quality of required biofuel can be procured from low

cost countries matching with the destination of the flight, it

will add cost benefit to the bottom line. The below

diagram, Fig. 2 shows a depiction of probable

collaboration with international producers.

India lags behing in the research and development of

producing aviation grade biofuel. Not only is the

technology missing but also the current production

capacity of biofuel is suited only for research needs and

cannot be commercialized.

Though this is a very viable option towards a greener and

sustainable future, however it has some challeneges which

needs to be handled and overcome carefully.

All the airlines currently use paper boarding passes

including some which provide mobile check-ins for its

customers. It can be proposed to implement use of Smart

Cards instead of paper based boarding passes for Frequent

Flyers of the specific airlines for domestic services. A smart

card reader will be installed at airports enabling customers

to automatically check in at the airport by tapping their

frequent flyer smart card on the reader. The card reader

will use Near Field Communication technology so that

installation is smooth and less disruptive.

1.2 Risks and Opportunities

2. Next Generation Check-In: Smart Cards instead of Boarding Passes

Risks

· Bargaining power of suppliers

· Increasing demand

· Less number of suppliers

· Uncertainty of biofuel prices

· Issues raised by Activist groups towards

indirect impact on agriculture for using biofuel

· Supply and Demand gap

· Government policies and regulations

Opportunities

· Most viable way to reduce carbon footprint

· Portray as a Green Brand among customers

· Save Costs from buying additional Carbon

Credits

· Extra Carbon Credits can be traded at

profitable prices

· Creation of Goodwill to the society and

Governement

· Collaborate with international biofuel

producers

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Value Engineering is an important means of quality improvement. Value Engineering analyzes the function and the cost of the project systematically. The basic formula of Value Engineering:-

V= F/C

Where-F=FunctionC= Cost

It is difficult to reach the goal of the construction project because of the large scale, big ticket investment, long period of construction, technical complexity and implementation difficulties etc. Project Controlling is a management-organization model which can prove to be helpful here. With the modern information technology, it conducts information collection, processing and transmission, which can guide and control the material flow of the project construction, and hence support the top management in decision making to plan, coordinate and control the project.

Model for Project ControllingThe following figure explains how an infrastructure construction project in India is undertaken-

THE CHALLENGES FOR INDIA IN INFRASTRUCTURE DEVELOPMENT

1. India's banking system is regulated Reserve Bank of India, which sets interest rates. The financial condition of the country prevents the Indian government from opening the sector to foreign competition. Moreover, loans are often sanctioned on the basis of political connections. In many cases, bank branches extend loans to firms controlled by local officials, even during periods when the central government is attempting to limit credit. Such a system promotes widespread inefficiency in the economy because savings are generally not allocated on the basis of obtaining the highest possible returns.

2. Rapid economic growth cannot be sustained without proper transportation and reduction in pollution level. Also India's investment in infrastructure development has not been able to keep pace with its economic growth.

3.The legal issues in India also pose a problem as widespread government corruption, financial speculation, and misallocation of investment funds. In many cases, government 'connections', not market forces, are the main determinant of successful firms in. Many foreign firms find it unviable to do business in India because rules and regulations are not transparent, contracts take time to get enforced, and intellectual property rights are not protected because of the lack of an independent judicial system. The lack of effective rule of law, current ownership of land, and widespread local

FinMin to monitor

large

infrastructure

RBI Allows

Banks & NBFCs

To Sponsor

Infrastructure

Debt Funds

PPP

1922

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Millions of vehicles ply the Delhi Noida Toll Bridge everyday but few people are aware of the operating structure behind the development of such a humongous flyover. Delhi Noida Toll Bridge was the first BOT (Build- Operate- Transfer) project undertaken in India.Build-Operate-Transfer is a type of Public Private Partnership (PPP) of finance and operating approach that has become popular mainly in the privatization of infrastructure in the developing countries. In India and other developing countries, rapid economic growth is more than infrastructure supply. Governments of these countries are unable to fund vital infrastructure development, so they are increasingly turning to large international firms for finance through concession contracts such as Build-Own-Transfer (BOT). Such firms generally have a greater credit rating and financial capability to finance the large scale projects. If executed properly, BOT results in a win-win-win solution for governments, private sector firms, and the community at large. From the perspective of the government, private sector participation offers off balance-sheet funding at the same time bringing the advantage of cost and resource efficiency to the project. As far as private players are concerned, BOT projects help them to expand market share and earn higher returns. Finally, because there exists a user -payer system, the common man does not have to bear the burden of increased taxes.The globalization of trade has compelled countries to have adequate infrastructure in order to keep pace with other growing nations. Inefficient infrastructure

becomes a bottleneck and thus creates a need to meet the infrastructure chasm or to turn existing infrastructure more efficient in many developing countries. Canning and Pedroni have studied the effects of efficient infrastructure on per capita income of countries over the period 1950-1992. The results of this study provide clear link between infrastructure and long run growth.What are the critical factors with BOT??

As BOT projects are high risk investments, may result in political and economic instability, social, technological and other non-financial factors can have implications on the financial viability of the project over the long term of investment. Hence a holistic assessment of the financial as well as non- financial factors of the concerned project needs to be undertaken for effective decision making.

Selection of BOT projects is critical. If the pre-planning stage of the project is done inaccurately, the consequences may prove to be disastrous. Such as Chinese first water supply BOT projects – No.6 Branch of Chengdu Water Supply Factory, the inaccurate forecast of the market demand in project planning process led to the oversupply. However, according to the agreement between the government and the project company, the government had no choice but to accept all water, which brought phenomenal loss to the government.

The most important factor in the BOT projects is to perform a project feasibility s t u d y a n d e v a l u a t i o n thoughtfully, which may include economy, conditions o f c o n s t r u c t i o n a n d production, market, law, technology, environment etc. The study of BOT projects is different from others. Besides the law permission, the most crucial thing is the evaluation of finance and of the national economy. The BOT project is approved by the government if s u c h e v a l u a t i o n s a r e satisfactory and acceptable.

Build Operate Transfer- A new schema in Infrastructure Development

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3. Waste Management

3.1 In-Flight Waste: Numbers tell the whole

story

3.2 Operational Aspects

The average airline passenger generates 1.3 lbs. of waste 8,9per flight . There are many items in the current in-flight

services' waste streams that can be minimised and

recycled. Following is the breakdown of the types of waste,

which came to light after a study, which was conducted on 9Cathay Pacific flights .

Based on current recycling opportunities, clean paper

items, transparent Polystyrene (PS) items and aluminium

cans have been identified as the most feasible recyclable

materials. These materials can be separately collected on

board for the recycling programme. The recyclable items

can account for up to 45-58% of the total galley and cabin

waste from in-flight services. The waste reduction and

recycling programme has the potential to contribute

greatly to local and global environmental protection, and

to save substantial operation costs for the airline industry.

According to “A Green America” report, no airline

provides good public information about its recycling

programs. Their websites, sustainability and annual

reports all lack transparency and details about the waste

they generate and how they are addressing it. Major

Airlines should take the first step in this regard and

differentiate itself from its competitors by providing a

regular report showing metrics on how it is progressing

toward its recycling goals.

Airlines can overcome any of the challenges by creating in-

flight recycling programs, including employee education

and involvement, knowledge of the type of waste

produced, and a time and space efficient system.

Additionally, they should increase the awareness about

recycling among the passengers. A video could be shown

to passengers about recycling, hoping that it will spur

participation in onboard recycling. The menus to be used

on flights can be printed on recycled paper with soy ink

and coffee can be served in cups made of post–consumed

recyclable paper. It can also offer local, organic, and

sustainable foods on flights.

We observed from the study of European Airlines that they

are doing everything possible to account for lowering their

carbon emissions consequent to the introduction of airlines

industry in ETS policy. Biofuel can be considered as the

most significant of them all. India is growing fast in the

Carbon Trading sector, which is even traded in the Multi

Commodity Exchange. It is also the first exchange in Asia

to trade Carbon credits. Hence reduction of Carbon

emissions is soon to catch attention for all the Indian

industries. At present times, the Airline industry in India is

Conclusions

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going through a gloomy phase with many major

companies incurring losses and defaulting on dues. To

invest in advanced technology may seem like a luxury to

them in these turbulent times. However, it should be

understood that these Green initiatives are for the long

term and for a better future, both for the industry and for

the society as a whole. This paper identifies some key

operational strategies and methods to address the issue of

the transformational initiative of going green. It should be

understood that the best place to improve and implement

changes is in the core operations of the particular Airline

corporation and the Industry as a whole. The need for

researchers and producers in the field of renewable energy

especially aviation grade biofuel also calls for utmost

attention.

1. 2 million tons per year: A performing biofuels

supply chain for EU aviation. (2011). Retrieved

08/07/2011, from

http://ec.europa.eu/energy/technology/initiatives

/doc/20110622_biofuels_flight_path_technical_pa

per.pdf

2. Advanced Biofuels Project Database. (5/3/2011).

Retrieved 7/22/11, from

http://biofuelsdigest.com/bdigest/2011/05/02/adv

anced-biofuels-capacity-to-reach-4-3b-gallons-

by-2015-128-projects-latest-database/

References

3. Deutsche Lufthansa AG in Travel and

Tourism (World). (04/2011). Retrieved

08/05/2011, from

http://www.euromonitor.com/deutsche-

lufthansa-ag-in-travel-and-tourism/report

4. Deutsche Lufthansa AG: Company

Profile. (7/27/11). Retrieved 8/3/11, from

http://www.datamonitor.com/store/Produc

t/deutsche_lufthansa_ag?productid=81313

A31-5353-4DF7-9388-B6DE7B935749

5. Barbout, C (2006). Trends in European

Airline Markets: Competition,

Concentration and Strategic Behaviour.

Journal of the Brazilian Air Transportation

Research Society, 2(2),

6. Clement, S, Wilkins, M, & Beyzh, M

(02/18/2011). Airline Carbon Costs Take

Off As EU Emissions Regulations Reach

For The Skies. Retrieved 08/23/2011, from

http://www.environmental-

finance.com/download.php?files/pdf/4d663c478e

fb8/Airline%20Carbon%20Costs%20take%20Off.

pdf

7. Mayor, K, & Tol, R S J (2010). Scenarios of carbon

dioxide emissions from aviation. Global

Environment Change, 20, 65-73.

8. Miyoshi, C, & Mason, K J (2009). The carbon

emissions of selected airlines and aircraft types

in three geographic markets. Journal of Air

Transport Management, 15, 138-147.

9. X.D. Li, C.S. Poon, S.C. Lee, S.S. Chung and F. Luk

(2003). Waste reduction and recycling strategies

for the in-flight services in the airline industry.

Resources, Conservation and Recycling, 37, 87-99.

Joydeep Barman IIM - Lucknow

17

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Manufacturing and now the world prepares itself for Real

Agile Manufacturing which focuses on investing in core

competencies, virtual organizations and sharing all types

of resources and to satisfy customers in terms of service

and quality. Hence IT is an essential condition and the key

to many problems faced. For the experts developing Real

Agile Manufacturing may focus on the following major

issues

· A methodology for evaluating potential

partner for RAM based on core competencies

and market forces needs to be developed

· Managerial model and organizational

characteristics of RAM

· Importance of Social Capital under the

new technique of RAM

· Development of new supply chain models

and to create techniques for measuring

performance and evaluating risk in the new

agile systems.

References:

· Small, A.W. and Downey, A.E., (1996), ̀ `Orchestrating

multiple changes: a framework for managing

concurrent changes of varied type and scope'',

Proceedings of IEMC 1996 Conference on Managing

Virtual Enterprise, Canada, pp. 627-34.

· Thompson, J. (1967), Organisation in Action, McGraw-

Hill, New York, NY.

· Sharifi, H. and Zhang, Z. (1998b), ``Enabling practices

assisting achievement of agile manufacturing'',

Proceedings of the Sixth IASTED International

Conference, Robotics and Manufacturing, July 26-31,

Banff.

· Drucker, P.F. (1968), ``Comeback of the entrepreneur'',

Management Today, April, pp. 23-30.

· Kidd, P.T. (1995), Agile Manufacturing, Forging New

Frontiers, Addison-Wesley, London.

· Dove, R. (1994-1996), ̀ `Agile and otherwise'', series of

articles on agile manufacturing, Production Magazine,

November to July.

· Hamel, G. and

Prahalad, C.K.

( 1 9 9 4 ) ,

``Competing for

t h e f u t u r e ' ' ,

H a r v a r d

B u s i n e s s

Review, July-

August, pp. 122-

8.

Abhinav SinglaIMI, New Delhi

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The elemental agility uses basic resources and remains at

an individual level; micro agile crosses the organizations

involved. But organizations forms can also be viewed at

different levels, the individual level, the enterprise level

and the inter enterprise level. But our interest lies with the

most advanced form of agile manufacturing which crosses

the boundaries of the organization. It emphasises the

building of core competence to enable the agile

organization to supply highly customized products. Figure

illustrates the relationship across the three organizational

levels emphasizing the aspects of resource competence to

demonstrate the degree of agility.

There are categorical difference between mass

production, lean production and Agile manufacturing.

Lean manufacturing which emphasis the efficient use of

resources is simply an enhancement of old mass

production methods. In contrast new Agile manufacturing

systems break out of the mass production mold to

produce highly customized products.

· Lean production is regarded by many as simply an

enhancement of mass production methods

whereas agility implies breaking out of the mass

production mold and producing much more

highly customized products.

· In a product line context, Agile manufacturing

amounts to striving for economies of scope rather

than economies of scale. Ideally serving ever

smaller niche markets but without the high cost

traditionally associated with customization

· Agile embodies such concepts as rapid formation

of multi-company alliances or ever virtual

companies to introduce new products to the

market.

· A lean company may b thought of as a very

productive and cost efficient producer of goods

and services

· Agile company is primarily characterized bas a

very fast and efficient learning organization.

Core competency is the key

Resources of single companies are no longer sufficient or

adequate for each step of the value creation process. Thus

the traditional value added chain is reshaped, so that

companies now concentrate on their core competence

(those aspects which they can do very well), while other

functions or services are produced by their partners.

Different sorts of core competencies are combined by a

specific bundling of success-critical abilities. Prahalad and

Hamel (1990) defined core competence as “the collective

learning focused on developing and coordinating a diverse

range of skills and capabilities. These are like the hidden

roots of a tree, giving corporations their strength.

Integrating core competencies requires collective

organizational learning, deep involvement and

commitment to cross the enterprise boundary. Short life

of modern enterprises can be attributed to weakness in

learning competence of any organization.

Conclusion

With rapid changes taking place in the global market, it

becomes clear that manufacturing enterprises working on

a base of Agile manufacturing become leaders but, the

effect of this new managerial system, new approaches to

technology and new ideas need to be continuously

developed. Manufacturing has evolved from Mass

manufactur ing , lean manufactur ing to Agi le

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According to the concepts of the operations, the design of

distribution network for a logistics company is a network

design problem. That network has to be optimized to meet

the demand at different nodes of the network for the

given distance between the nodes, cost of goods transfer

in the pipeline and cost of warehousing. But, in India,

historically, the supply chain or logistics of any

organizations are driven by tax considerations rather than

the operational efficiency. Introduction of Goods and

Services Tax (GST) will change the situation and the

logistics industry is expected to go through a major

transformation providing opportunities for new players

and new business models.

Current scenario

The current tax structure is quite complex - there are

central level taxes in form of excise, customs duty and

Central Sales Tax (CST@4%), and then there are varying

state level taxes in form of VAT and other levies like cess

etc. The problem is that, state level taxes are applicable on

top of central taxes which mean the supplier is paying

taxes on taxes.

Tax structure has created an interesting exemption from

central tax if there is a stock transfer between the states

where as any inter-state sale is taxable. For example, an

organization having warehouses in two different states

can transfer the stock between the two warehouses

without paying CST and get away by paying only state taxes

after selling the goods in that state. But any sale between

the two states will be taxable under CST and state taxes are

applied over the CST.

Now, the only way to avoid this double taxation is to create

warehouses in every state and perform stock transfer

between inventory stocking points. Hence, most

industries - like manufacturing, FMCG and third party

logistics players - generally have warehouses/offices in

each state to reduce tax burden of Central Service Tax

(CST). Thus, distribution network planning is more driven

by logic of saving taxes, rather than achieving operational

efficiency.

The network planning is divided into two stages where you

first decide whether to have a warehouse in that state or

not and if yes, then decide where to setup the warehouse

in the state. The decision of whether to have a warehouse

in a particular state or not is simply a trade off between the

CST incurred if there is no warehouse and inventory costs

incurred if there is a warehouse. Both the tax payable and

the inventory costs are driven by the demand in that

particular state. As shown in the figure, only if the total

demand in the state is greater than d*, it is profitable to

setup a warehouse in that state. When the demand is less

than d*, it is profitable not to have a warehouse in that

state as the cost of tax is less than the inventory cost.

After deciding to setup a warehouse in a state, now the

decision of where to setup in that state should be

addressed. As shown in the figure, majorly two strategies

are followed for this problem namely, entry point strategy

or centre of gravity strategy. Primary shipping cost

(shipping from factory to warehouse), warehousing cost

and secondary shipping cost (shipping from warehouse to

retailer) are the decision variables here. The total

weighted average cost of shipping (demand at retailers are

the weights) determines the strategy to be followed. Entry

point strategy is profitable if the secondary shipping cost is

less than primary shipping cost and centre of gravity is

Impact of GST on Supply Chain Industry

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profitable if secondary shipping cost is more than primary

shipping cost.

With 28 states and 7 union territories in India, that

accounts to 25-40 small warehouses (depending on trade

off explained above and scale of operations) instead of 6-8

large warehouses which would be needed for geography

of this size. For some manufacturers with countrywide

operations, the warehouses are as high as 55 – 60 in

number.

Introduction to GST

From the newly proposed tax structure (GST) which treats

goods and services alike, only the inputs that affect supply

chain are reproduced here. GST is a comprehensive value

added tax on goods and services where the tax is levied on

'value added' at each stage of supply chain and provides

seamless input tax credit throughout the supply chain.

GST does not distinguish between goods and services and

the tax is collected at the point of consumption. Same

taxable value base for computing Central and State GST

hence no cascading impact of tax. There is no cascading

effect of tax on cost under GST and the tax incidence is fully

transparent. Hence the present taxable events such as

“Manufacture” in case of Central Excise and “Sale” in case

of VAT or CST will lose relevance.

Changes in supply chain due to GST

Under the tax structure proposed by GST, the tax is levied

only at the point of sale irrespective of whether it is inter-

state sale or intra-state and both the state and central

taxes are collected on the same base. The final tax on a

product would be the same, irrespective of the structure

or location of its production, procurement of inputs and

the nature and complexity of the distribution chain. This

primarily eliminates the need for having warehouses in

different states. Hence the supply chain would be

undergoing a drastic shift towards re-aligning/merging

the smaller warehouses to most productive and logical

locations - without having to think of tax burden.

With GST, the decision of where to setup the warehouse

will be guided by the distance between the manufacturing

unit & demand centres, service levels to be satisfied,

primary shipping costs, warehouse costs and secondary

shipping costs. As shown in the below figure, the primary

shipping

cost is the cost of shipping goods from manufacturing unit

to the warehouse where the secondary shipping cost is the

cost of shipping from warehouse to the retailer.

Distribution network should be designed in such a way

that, the sum of primary shipping cost, inventory cost and

secondary shipping cost should not exceed direct shipping

cost from supplier to retailer. If a warehouse is shipping to

multiple retailers, then the weighted average cost at that

warehouse should be minimized to get the optimum

distribution network. In general, the primary shipping cost

per unit is less than the secondary shipping cost per unit

because of the good quality of road transport

infrastructure between cities and the economies of scale.

In general, there should be a warehouse within 600Kms of

any demand centre (city) to meet the service level of

delivery within two days of order (industry norm).

Impact of GST

GST would force the suppliers to optimize the supply chain

and gain cost advantage. The optimization would impact

many areas and few of them are discussed here.

Cost reduction: Due to the optimization of distribution

network, the overall shipping cost of the product would be

reduced and the profit margins of the supplier would

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Making the right product at the right time and at

the right price requires adaptable manufacturing

operations management.With success in manufacturing, indeed even survival has

become increasingly difficult. Competition has intensified

from a national arena to a global scale. Product life cycles

have shrunk, yet there is an escalating requirement to

satisfy the specific and individual needs of customers.

Hence a need for Agile Manufacturing is on the cards.

Thus where once a manufacturer's success could be

measured by their ability to cost effectively produce a

single product; success now seems to be measured in

terms of flexibility, agility and versatility. That is, by the

ability to handle continuous improvements and change.

Consequently the changes in markets, customer

requirements technology have become the competition

criteria, and are now the critical factors in determining

manufacturing success. These raid environmental

changes have forced companies to improve their

manufacturing performance in conditions of increasing

uncertainty. Significantly such changes are occurring

faster and more unexpectedly than ever before. An

enterprise is confronted with a continuously changing and

unpredictable environment. Management has responded

to these competitive environmental pressures, in

particular to ensuing uncertainty and volatility by

developing new approaches, concept and methods. As

Sharp et al. (1999) put it, “there are many manufacturing

panaceas” Research by Womack et al. (1990), has

demonstrated that there are many different views about

the ways companies can improve their manufacturing

function to enhance their competitive advantage. Yet,

despite the resultant variety in manufacturing research

some recognizable tendencies are emerging. For example,

in production systems, rigid manufacturing systems are

changing to flexible manufacturing to improve the

system's ability to respond to consumers' needs. In

organization structures, large multi-level organization

structures have been reduced to single level network

structures. Concurrent engineering and virtual have been

introduced. In computer management, single task

applications have been transformed into computer

integrated manufacturing systems (CIMS). The driver of

these changes is the unrelenting evolution of competition.

Competitive advantage is soon lost and newer, sharer

techniques and technologies are honed to provide a new

competitive edge.

Real Agile Manufacturing

It is the strategic process of responding to the

competitive environment of continuous and

unpredictable change by reacting quickly and effectively

to changing markets. It takes multiple winners as an

objective, integration as the means with IT as an

essential condition and core competency as the key.

Agility is driven by competition; fragmentation of mass

markets; cooperative production relationship; evolving

customer expectations and increasing social pressures.

The core of any change includes consumer, competitor,

technology and resources. Accordingly Agile

Manufacturing has been defined in terms of the agile

enterprise, Products, workforce, capabilities and he

environment which gives impetus to the development of

the agile paradigm. The principal elements of the

definitions presented can be summarized as follows.

· Response to change and uncertainty

· Building core competencies

· Supply highly customized products

· Synthesis of diverse technologies

· Intra enterprise and inter enterprise integration

Agile manufacturing embodies the ability to cope with

change by the application of partners' core competencies

to supply customized products. It requires the synthesis of

diverse technologies within an integrated system.

Agile manufacturing is strategic processing in that it must

be deeply incorporated in the organizations development.

However different firms will vary in how they may

strategically respond to the changing business

environment. One consequence of this is that they may

use different levels of agility. From our synthesis of the

elements of agility we can recognize that here are three

distinctive levels of agility, which can be described as

elemental, micro-agile and macro-agile.

ADAPT TO THRIVE Mass-Lean-Agile-RAM

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increase. Some part of these cost reductions will be

passed on to the customers and there by impacting the

demand for the product.

Automation: In addition to the inefficiency of the existing

distribution network, Indian logistics industry is highly

fragmented resulting in extreme competition and low

margins. Due to the small size, using any ERP solutions for

effective demand prediction would be costly affair. Hence,

most of the small & medium businesses have stayed away

from technology implementations. This impact of

inefficiency and cost burden is passed to end consumer,

either in terms of quality; SLAs or in terms of cost. With

GST, the number of warehouses will be reduced and the

suppliers would be able to think of using automation

which will deliver efficient operations and cost benefits.

Service levels: In the distribution network, service levels

will be specified in terms of number of days required to

deliver an order. Generally accepted norm is 2 days and to

meet this service level, warehouses are ensured to be

within 600Kms of distance from demand centres. Before

the introduction of GST, a demand centre very remote in a

state 'A' which is not within the acceptable distance to

meet the service level could not be served in time by the

warehouse in state A(see the figure). Because of CST, that

particular city cannot be served by the warehouse in state

'B' even though it is very near. This leads to sacrificing the

service levels at some places. With GST, this problem can

be resolved and that remote city can be served by

warehouse in the adjacent state and meet the service

levels.

Overall, introduction of GST would impact the supply

chain industry in a positive way and the organizations

which change themselves to the new structure very

quickly will have competitive advantage. Especially this is a

major opportunity for 3PL firms to gain early market and

establish themselves.

References:

1. Class notes of Logistics Management on 25-10-

2011, an elective by Prof G. Raghuram, Public

systems group, IIM Ahmedabad\

2.http://www.infosysblogs.com/logistics/2010/11/gs

t_impact_on_logistics_indust.html

About the authors:

This article is written by P. Babu Ravi Kumar,

Ravi Kumar Yadavalli & Ajay Miryala. The three

authors of this article are the second year

students of IIM Ahmedabad and have written

this article based on some class notes of an

elective called Logistics Management and few

simulation games.

OpsessiaClass Room

lasting price shocks can change the price of the

final product. In such case (long lasting price

shock) firm 'A' which uses plastic polymer

a s a ra w mater

ial can

succ

ess

fully

u s e

Options and f u t u r e s

to nullify the effect of increase in raw

material prices.

From the above chart, it is surprising to see

that the margins of the plastic product

manufacturing firm hedging against

petroleum prices have in-fact increased

with the increase in oil prices after period T0.

Oil forms an important component in

manufacturing polymer used in plastic. However

the firm producing polymer passes on this cost to plastic

good manufacturer after time T1. This T1-T0 is the cycle

time of inventory replenishment for the polymer

manufacturer. The price of actual polymer used to

produce plastic goods increases after time T2. The time

T2-T1 is the inventory replenishment time of the plastic

product manufacturer. However because of hedging, the

plastic manufacturer had the instantaneous advantage of

rise in crude price in the future/options market, which

increases the margins of plastic good manufacturer (firm

A) after T0. However the effect of increased margin was

nullified after T2, when the inputs cost increased. Thus

the Operations Manager could control the price of raw

materials used in processing and in addition was able to

reap temporary benefits of oil price rise by hedging.

Thus financial instruments when used for Operations

Planning and management can prove as a perfect tool

for cost optimization and margin maintenance.

The field of Operations Management and the experts in

the Operations Management should not just restrict their

focus on improving Operations process to control cost, but

also on allied branches like Finance and Marketing which

could provide important insights to Operations Manager

to help the firm sail through tough times through a

symbiotic amalgamation of tools of Operations

Management, Financial Management and other branches

of management.

References:

Financial Management

Marketing Management

HRM &other alliedbranches

OperationsManagement

Mohit KheraPGDM 2011-13IMI, New Delhi

·*http://www.rediff.com/money/2007/aug/01cspec.htm

14 27

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Supply chain: A chain of supplier and customer'Flow of products from suppliers to customers and flow

of information from customer to supplier' this is what

we call as supply chain. Whenever we talk about

suppliers and customers, we incline to think about

supply and demand. We can say Supply chain is a

complex and dynamic supply and demand network. The

word “dynamic” becomes important here due to several

reasons.

[Picture: Circles A, B…, E are points where they act as

supplier for later circle and customer for earlier circle]

Information Technology and Supply Chain network

optimization

Optimization of supply chain network has become

resurgent because of the kind of tools and technology

available these days. Existing Information and

communication tools can model any complex network

much better than ever before. In recent times,

companies are facing problems not in the designing of

the network but in the optimization of networks for cost

minimization, efficiency and efficacy. This neck to neck

competition has compelled companies to refine and fine

tune their past ad-hoc network.

To optimize a network, some of the critical steps to be

taken are:

1. Sources of supply need to square

2. Customer contracts and service levels to be

reviewed

3. Product mix should be optimized

4. Location, efficiency and duplication of facilities

needs to be addressed

5. Software and technology tools being used

needs to be addressed

Trends in Supply Chain management with engrossment of IT

A. Lean system and Value Stream

Elimination of waste and concept of JIT (Just in time)

comes into picture by changing the style of supply chain

management.

Lean principles focus on creating value by specifying

value added activities from the perspectives of the end

customer as well as the company.

Values are determined by:

1. Identifying all the steps

required to create value

2. Mapping the value

stream

3. Challenging every step

by repeated probing

4. Lining up value, creating

steps so they occur in rapid

sequence

5. Creating flow with

capable, available, and

adequate processes

6. Pulling materials, parts, products, and

information from customers

7. Continuously improving to reduce and eliminate

waste

Role of Information Technology in Supply Chain

13

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bought a call at a strike price of Rs 500. On expiry the price

of the asset is Rs 450. Vikas will not exercise his call.

Because he can buy the same asset from the market at Rs

450, rather than paying Rs 500 to the seller of the option.

However if the price of asset on expiry is more than Rs 500

(say Rs 600), Vikas can exercise his call option and buy the

asset worth Rs 600 at Rs 500 and thus earn a discount of Rs

100 if the asset was purchased at market price.

The buyer of a put option will not exercise his option (to

sell) if, on expiry, the price of the asset in the spot market is

more than the strike price of the call. For e.g.: Sharad

bought a put at a strike price of Rs 600. On expiry the price

of the asset is Rs 619. Sharad will not exercise his put

option. Because he can sell the same asset in the market at

Rs 619, rather than giving it to the seller of the put option

for Rs 600. On the contrary if the price on expiry is less than

Rs 600 (say Rs 550), Sharad can sell the asset at Rs 600 and

earn a profit of Rs 50 if the asset was sold at market price

Hedging and Operations Management

With the use of Futures and Options, Operations manager

can hedge against future probable rise in input cost by

trading in Options and futures of the related commodities

which go as an input in production cost. Even Operations

managers can trade in futures and Options of Crude oil in

commodity market to provide a cushion for effect of

petrol/ diesel price rise on transportation cost.

If Operations Manager expects a rise in cost of certain raw

materials, he can use futures and Option to negotiate a

price for future uncertain environment and control the

input cost for production. It will also help to reduce

inventory holding and storing cost as the firm may longer

need to have huge pile of inventory to cushion itself from

external uncertainties. Apart from trading on

commodities which are used as raw materials, it would be

wise for the Operations Manager to also trade in Crude Oil,

as it will help provide cushion for transportation cost in

case of oil price rise.

In many cases, firms do not directly buy raw materials

which are traded on Commodity exchange, but buy a

certain processed good from other industry as raw

materials. For example plastic polymer is not traded on the

commodity exchange. However Plastic product

manufacturing firms (say firm A) using plastic polymer as a

raw material in production of Plastic goods, can hedge on

crude Oil which is the major ingredient used to produce

plastic polymer. Thus as crude oil price rises, with a certain

market delay (cycle time), the price of polymer will go up.

However though many industries are immune to

temporary shocks due to their large inventories, long

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However with inflation not only the petrol price, but also

the prices of all the goods and services (labour) goes up

which may put extreme pressures on the firm to

maintain margins at a constant selling price.

As the options for Operations manager are few and

difficult, is there any other easier way in which firms

can protect their margins without having to bother

about the rising cost of inputs?

Yes! There is a way to protect margins without

controlling actual input cost. But for this Operation

Managers have to think out of the field of Operations

management and enter into a world of speculation and

hedging. Operations manager can use financial

instruments like options and futures as a hedging tool to

reduce or at minimum to maintain the input cost and

thus maintain margins.

A brief overview about Futures and Options *

Futures

A 'Future' is a contract to buy or sell the underlying asset

for a specific price at a pre-determined time. If you buy a

futures contract, it means that you promise to pay the

price of the asset at a specified time. If you sell a future,

you effectively make a promise to transfer the asset to

the buyer of the future at a specified price at a particular

time. Every futures contract has the following features:

· Buyer

· Seller

· Price

· Expiry

Some of the most popular assets on which futures

contracts are available are equity stocks, indices,

commodities and currency. The difference between the

price of the underlying asset in the spot market and the

futures market is called 'Basis'. (As 'spot market' is a

market for immediate delivery) The basis is usually

negative, which means that the price of the asset in the

futures market is more than the price in the spot market.

This is because of the interest cost, storage cost, insurance

premium etc., That is, if you buy the asset in the spot

market, you will be incurring all these expenses, which are

not needed if you buy a futures contract.

Options

Options contracts are instruments that give the holder of

the instrument the right to buy or sell the underlying asset

at a predetermined price. An option can be a 'call' option

or a 'put' option.

A call option gives the buyer, the right to buy the asset at a

given price. This 'given price' is called 'strike price'. It

should be noted that while the holder of the call option

has a right to demand sale of asset from the seller, the

seller has only the obligation and not the right. For eg: if

the buyer wants to buy the asset, the seller has to sell it. He

does not have a right.

Similarly a 'put' option gives the buyer a right to sell the

asset at the 'strike price' to the buyer. Here the buyer has

the right to sell and the seller has the obligation to buy.

So in any options contract, the right to exercise the option

is vested with the buyer of the contract. The seller of the

contract has only the obligation and no right. As the seller

of the contract bears the obligation, he is paid a price

called as 'premium'. Therefore the price that is paid for

buying an option contract is called as premium.

The buyer of a call option will not exercise his option (to

buy) if, on expiry, the price of the asset in the spot market is

less than the strike price of the call. For example: Vikas

Head % of selling price Increase in cost % New Amount Selling price 100% 0% Rs 100 Direct material 40% 5% Rs 42 Indirect material 10% 5% Rs 10.5 Labour (both direct and indirect) 20% 0% Rs 20 Miscellaneous cost 10% 0% Rs 10 Transportation cost 10% 50% Rs 15 Margin 10% (75%) Rs 2.5

29

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Value stream consists of the value-adding activities

required to design, order, and provide a product from

concept to launch, order to delivery, and raw materials

to customers. Value stream contains several mapping

tools which are named as waste visualization tools. A

company can reduce all 7 kinds of wastes by using these

value stream mapping tools.

B. Mass customization

Mass Customization is an operational strategy with

extensive use of information technology tools and

applications which are focused on velocity and

tractability in a make-to-order process of operation,

with the aim of producing large quantities with

minimal changeovers and interruptions. Mass

Customization products are standard products,

providing a company a competitive edge by having

the capability to manufacture specialized or custom

products at the speed, volume, cost, and quality of

standard products.

Mass Customization is different from lean system;

lean system focuses on repetitive manufacturing on

the make to stock process of operation. Mass

customization is oriented towards high-volume,

product mix, adding velocity and flexibility in the

production process. It relates to environments

where a large degree of customized, or specialized

orders, offer a competitive advantage to the

company.

C. Advance planning and scheduling (APS)

An enterprise planning system utilizes planning and

scheduling techniques that consider a wide range of

constraints to produce and optimize plans based on

mathematical modeling under demand and supply

limitations and perform finite scheduling by

analytical tools to come up with a realistic plan. It is

flexible and integrated with implications of

alternative options so that the execution of plan

becomes easier and supportive to the real time

decisions.

It involves advanced information technology

knowledge, programming techniques like linear and

dynamic programming and heuristic and fuzzy based

techniques for optimal solutions.

The core benefits of APS are-

1. Increase accuracy of supply chain

performance,

2. Operate as a real-time system

3. Increases utilization of resources,

4. Enhance efficiency of asset deployment

IT applications and integration with Supply chainIT applications with integration of core supply

chain activities are playing major role in supply

chain management. Development of various

tools and software system for warehousing,

customer relationship management, material

planning and forecasting, Resource planning,

Tracking, Customer data collection has

tremendously changed the managing style of

supply chain of organization.

[Image Source:

www.tompkinsinc.com/systems/default.asp]

A. Cross docking and Vender Management

Inventory

Cross-docking is a technique whereby venders are able

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to reduce their inventory stock significantly. It has

helped in achieving a continuous and smooth flow

between manufacturers' deliveries and store

replenishment without buffer stock at Retail distribution

center.

For a successful cross docking these things are essential-

1. Supply chain partners must be linked with

advanced information systems for coordination

2. A fast and responsive transportation system

3. Forecasts should be much accurate, requiring

the sharing of information

B. RFID system

RFID system consists of readers and tags capable of

storing and transmitting information, a RFID tag is

designed itself as a microchip with an antenna. This tag

is labeled to the products which are going to be shipped.

When the tag comes within the close range of the

reader, the data is captured and redirected to the

workstation computer.

RFID technology has been instrumental in improving

supply chain visibility and reducing theft and

counterfeiting.

Tracking the products through supply chain has reduced

the uncertainty risk and bullwhip effect, improved

collaboration among partners, fewer stock-out

situations, reduced inventory stocks and ultimately

increased the profit by reducing cost.

Reference

1. Srivastava/radio frequency identification

technology: The next revolution in SCM

2. Rockfordconsulting group university/ mass

customization

3. Anand Subramanyam/advance planning and

scheduling

Umesh C.S. Arya IIM -Kozhikode

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In an open economy, production firms are highly

susceptible to the variation in cost of raw materials and

other direct costs. With inflation rate soaring at 9-10% per

annum, it is a difficult task for Indian production firms to

maintain a stable input cost. As a result, there is constant

pressure on the margins of the firms. Achieving a constant

supply of raw materials over a period of time at a stable

cost is the most difficult task for purchasing managers.

Advanced tools like Inventory Management, Warehousing

or Price Forecasting may be used to control prices of inputs

upto a certain level. However even all these methods do

not ensure 100% surety of providing raw materials and

direct inputs at a constant price.

In such an environment, Operations Manager has very few

options from their field of specialisation to keep the

margins stable. Capital Intensive methods may be

employed to achieve economies of scale and reduce the

fixed cost. However the initial cash outlays would take the

cash out of the business making the firm more susceptible

to price fluctuations. Therefore it becomes a mammoth

task for the Operations Manager to seek methods or make

provisions for increase in the direct cost involved in

production.

Historically it has been observed that Indian firms spend

on average 7-9% of the selling price on transportation cost

as against 2.5% in USA. In case of heavy materials like Steel

or Iron, the transportation cost can be as high as 33%. The

reason for such high cost can be attributed to many factors

like state taxes, Toll tax, lack of proper infrastructure like

highways or speedways, government policies etc. The

implication of such high proportion of transportation cost

in the final price is that, a small increase in transportation

cost can cause an increase in overall cost of the product

and a large decrease in margin. Consider an example

where selling price of a product is Rs.100 with a planned

profit margin of 10%. Raw material and direct and indirect

cost would be around 80% of selling price and

transportation cost around 10% in Indian context.

Take a hypothetical situation in which the petrol and diesel

price have gone up by 50% over a period of time (as it has

happened over last few years in India). As a result the

transportation cost would increase by 50%. Even the cost

of direct and indirect materials would rise as a result of rise

in transportation cost to the raw material supplying firm.

Considering that 10% of the price is spent on

transportation by the raw material supplying firm, a 50%

increase in petrol price would lead to 5% increase in cost of

direct and indirect material. Thus with 50% increase in

petrol price, there is 75% decrease in margin of the firm if

selling price is kept constant.

If Operations Manager wants to respond to this huge

decrease in margins, he may have to increase the selling

price or reduce cost under other heads by some way. If he

resorts to increase in selling price and if there are too many

other competitors offering similar product and at similar

price, the demand for the product would go down further

adding to downward pressure not only to profits, but also

the Topline. If Operations Manager decides to reduce the

cost of raw materials, it can be achieved through three

ways

- By reducing the quality of raw materials thereby

compromising the entire product quality OR

- By further negotiating prices from suppliers. OR

- Looking for alternative materials which could be

used as raw materials. However these may involve

increased R&D cost and a complete process re-

engineering which could be costly and adding

higher initial outlays. OR Combination of any of

them Thus just by rise in petrol price, the

company's margin is jeopardised. However with inflation

Achieving Operational Excellence through Financial Instruments

Head % of selling price Actual Amount Selling price 100% Rs 100 Direct material 40% Rs 40 Indirect material 10% Rs 10 Labour (both direct and indirect) 20% Rs 20 Miscellaneous cost 10% Rs 10 Transportation cost 10% Rs 10 Margin 10% Rs 10

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Moving forward we would expect to see many such

examples from other sectors of Industry, where

Operations Managers would consider India as a missing

link in their Global Supply Chain management and India

would emerge a leading Exporter of the world.

By Mithilesh Borgaonkar

He has completed his BE Electronics, from Sardar Patel College of Engineering, Mumbai

University. He has a work experience of 27 months with MindTree Ltd. after that he

stjoined IMI & is currently in 1 year PGDM, IMI, Delhi. He is also a member of Genesis, the

operations club of IMI.

References

#

*

http://en.wikipedia.org/wiki/Automotive_industry_in_India

http://en.wikipedia.org/wiki/Automotive_industry

Manufacturer Model

Indian Automotive Companies

Chinkara Motors Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster

Hindustan Motors Ambassador

ICML Rhino Rx

Mahindra Major, Xylo, Scorpio, Bolero, Thar, Verito, Genio, XUV500

Premier Automobiles Limited Sigma, RiO

San Motors Storm

Tata Motors Nano, Indica, Vista, Indigo, Manza, Indigo CS, Sumo, Grande, Venture, Safari, Xenon, Aria

Foreign Automotive Companies

BMW India 3 Series, 5 Series, X1, X3.

Fiat India

Grande Punto,

Linea

Ford India

Figo,

Fiesta Classic,

Fiesta,

Endeavour.

Chevrolet Spark,

Beat,

Aveo U-VA,

Aveo,

Optra,

Cruze,

Tavera

Honda Siel Brio,

Jazz,

City,

Civic,

Accord.

Hyundai Motor India

Eon,

Santro,

i10,

i20,

Accent,

Verna,

Sonata Transform.

Land Rover

Freelander 2

Maruti Suzuki 800,

Alto,

WagonR,

Estilo,

A-star,

Ritz,

Swift,

Swift DZire,

SX4,

Omni,

Eeco,

Gypsy

Mercedes-Benz India C-Class,

E-Class

Mitsubishi

Lancer,

Lancer Cedia,

Pajero

Nissan Motor India

Micra, Sunny

Renault India

Fluence,

Koleos

Toyota Kirloskar

Etios Liva

Etios,

Corolla Altis,

Innova,

Fortuner

Audi India

A4,

A6,

Q5

Škoda Auto India

Fabia,

Laura,

Superb,

Yeti

Volkswagen India

Polo,

Vento,

Jetta,

Passat

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The recent natural calamities in the Asia Pacific have put up

a question mark on the very validity of JIT. Organizations

who swore by JIT for more than three decades, reaped

immense benefits from it are now questioning the

applicability and future of JIT. Is JIT the real reason for these

losses? Should an approach that has proven immensely

profitable in the past be done away with? Is JIT past its due-

date?

One of the biggest victims of the recent catastrophe in the

ASEAN countries was automotive industry - which has JIT

imbibed in its DNA.

All these losses have forced

companies to rethink on their

A Hitachi factory north of Tokyo that

makes 60% of the world's supply of airflow sensors was shut

down. This caused General Motors to shut a plant in

Shreveport, Louisiana for a week and Peugeot-Citroen to cut

back production at most of its European plants. Nissan also

encountered a similar problem when it had to cut back

production by almost 12% due to stock-out of engines.

Similar story was repeated due to Thailand floods which are a

major supplier of auto ancillary. Frost and Sullivan report

gives a picture of the impact of floods on different OEMs.

The electronics industry

hasn't been an exception to

this case. Dell is facing

shortages in HDDs supplied

by Thailand manufacturers.

Apple and Lenovo had

anxious moments in 2010

when uncertainty loomed

over supply of DRAMs for

their computers.

JIT methods followed currently. Some analysts are even

speculating it to be the end of road for JIT. However, before

making any decision or reaching any conclusion one should

go down to the very fundamentals of JIT, why did it come into

being, how it made so big?

Apart from this, JIT came with

numerous benefits like reduction in setup time, elimination

of waste, cut down in production times and more importantly

better supplier relationships. Companies started seeing JIT

as a competitive advantage.

JIT has been there since more than three decades now, much

before the advent of globalization. It is a time proven system

that enables an organisation to reap immediate benefits of its

actions. Back in the early 80's, a number of American firms

started adopting JIT manufacturing in an attempt to reshape

their manufacturing environment. An immediate outcome of

order based or pull based systems was reduction in

inventories and saved costs. This further encouraged other

organizations to adopt JIT.

In the early 90's development of EDI further improved communication between organizations making supply chains more agile and more responsive. IT tools started becoming more powerful, making supply chains more agile and efficient. In modern times, as product demand lifecycles started shrinking, just in time offered a viable alternative that could significantly reduce financial risk by postponing final assembly of the components as well as reducing inventory levels. DELL's supply chain which emerged during this time was looked upon for its flexibility and efficiency.

Just to have a glimpse of the benefits that the automotive

sector reaped because of JIT implementation, we can look at

the following exhibit.

Measures of inventory management performance used in the

analysis

(Source: John F. Kros, Mauro Falasca, S. Scott Nadler, (2006) "Impact of just-in-time inventory systems on OEM

JIT and supply chain disruptions

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the Indian experience in automobile manufacturing and

favourable government policies by entering into JV with

Indian partners. With over 23 companies producing over

98 brands/models of passenger vehicles in India and 23

companies producing commercial vehicles in India, the

competition in Indian market is fierce.

As a result of such large number of brands coupled with

lower aggregate domestic demand (even though %

growth is higher) the demand of automobiles per brand

gets distributed, with domestic brands enjoying a higher

market share due to higher penetration and customer

confidence. For foreign brands to cater to the small but

ever growing customer demand, setting a small to

medium scale plant would be considered as a viable

option in a short run. However setting a small to medium

scale output plant to meet its current mediocre demand

for medium to h igh pr iced veh ic les would

jeopardisecompany's long term plans and objectives of

growth. On the contrary setting a large scale

manufacturing plant with large production capacity would

result in higher initial cost and excess production.

In such difficult situation, Operations Manager went

beyond the obvious and sought to take advantage of

liberal Indian Export policies and liberal import policies of

countries like those in Middle East, Africa, South East Asia

and South Asian regions. Companies like Nissan and VE

(Volvo-Eicher Motors JV) have setup their large scale

production plants in India to cater for future rise in

domestic demand for automobiles and anticipating

growth in domestic automobile market. At the same time,

the current excessfrom the production was exported to

the countries like those in Africa, Middle East, South Asia

regions. These companies have worked to develop India as

a supply chain management and export hub apart from

countries like Japan and China.

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suppliers")Clearly, the benefits provided by JIT outweigh its risks by a huge margin, so how can one think of eliminating JIT as a system? However, the current set up cannot continue and organizations need to relook at their operation. The reason lies in the history of globalization. Through globalization, organizations now could exploit an opportunity to manufacture in low cost regions at a fraction of the cost which they would have otherwise incurred. Supply chains were now stretched to enable organizations to source components from different vendors across the globe and assemble them at the very end. Very soon this created concentrated manufacturing hubs on the world Map, especially in case of components. E.g.: the Guangdong province in China is responsible for 80% of the world's production of basic electronic components. Similarly Hitachi Chemicals produces 70% of the slurry used by the entire world's chipmaker's to polish their wafers. A just in time approach combined with this globalization exposes organizations to catastrophic risks as can be seen during the recent times. We need to come up with a solution that could mitigate these risks and yet enable organizations to continue reaping these benefits.

Multi-sourcing

During the course of t ime, companies started misinterpreting the JIT philosophy of reducing the suppliers. Companies started the practice of having sole suppliers to achieve economies of scale and build stronger relationships with suppliers. However, this made them vulnerable to such shocks and took away their flexibility. This also led to what is known as reverse bullwhip effect. It has become highly imperative for such companies to increase the certainty in supply by maintaining two or more suppliers which is known as multi sourcing approach. Again, multi sourcing is a strategic decision where the location of two suppliers also matters a lot in such situations of calamities. In case of Japan crisis, some companies with multiple suppliers also failed as both of the suppliers belonged to the same geographic region. De-risking can be done by having supplies from different geographic regions. Honda is a good example of such approach as they have already started expanding their base in India.

Product Configurations and marketing

With a move towards modularization and mass customization, organizations are now capable of offering a variety of product configurations without making huge changes to their operations. Dynamic pricing and flexible product portfolios could help companies such disruptions in certain cases. However, this approach finds limitations in case of critical components and products.

Emergency Stocks

It is necessary for companies to start reconsidering their emergency stocks. It is necessary to decouple supply chains at certain levels. Consider the case of emergency stocks of medicines in case of an epidemic. A pharmaceutical company is expected to ramp up its supplies by several times to be able to contain an epidemic outbreak. However, the government maintains a safety stock to ensure that enough medicines are available during this ramp up. Organizations too must start thinking in terms of these emergency stocks at least in case of certain critical components.

So, rather than having rigid supply chain following classical JIT approach, organizations need to come up with innovative customizations in JIT to counter such disruptions in supply chain.

Sandeep Borkar SJMSOM , IIT Bombay

Gaurav KawaleSJMSOM , IIT Bombay

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Abstract:

Supply chain does not sustain only on the

coherence and synergies between the external

parties engaged in the value chain. The

understanding of the various department oriented

issues need to be considered to unlock the

potential of the organizational efficiency and

productivity. The intra-organizational balance

pertaining to the issues of the operations in the

organization can never be handled without the

effective integration and cross-functional teams

(Oliva, 2006). Sales and Operations Planning makes

it possible to unleash the organizational power of

handling the problems effectively for excellent

demand-supply management. A study done by

Aberdeen Group in 2008 suggests that the best in

class companies implementing S&OP, were having

2.5 or 6 times better KPIs than that of the other

companies. Paper uses concepts and small cases to

discuss how Sales and Operations Planning is a

fundamental that still works best (Stahl, 1999) and

can be greatly improved with the advanced

functions & tools like CPFR& BI.

Are you doing S&OP properly?

Nowadays, nearly every successful company

working with excellence in the Supply chain

management performs Sales and Operations

Planning (S&OP). S&OP is the single most critical

competitive weapon that can ensure profitability

with right selection of the channels and products

for the right customers. But often it is found that

the S&OP is not prepared or improved in the way it

should be. Sometimes it may be because of

inappropriate ways or improper choice of the tools

used to prepare S&OP making it more cumbersome

and laborious. The research (Joseph, 2009) shows

that 70% of the organizations will be changing their

technology and are on the verge of enhancing their

S&OP process in near future. It indicates that the

S&OP needs to be improved and enhanced

continuously and is necessary for the organization.

At the same time, the opportunities and threats

related to S&OP should not be overlooked.

The case Elkay Manufacturing (Cary Wood, 2002)

studies the adverse effects of competitive

environment in the market. The need for

improvement made the Elkay managers think about

the alternate ways to improve the organizational

performance in the market by increasing the

involvement of the top management. Finally it was

revealed that S&OP provided Elkay a “one-plan

process” which was the key for the success

revealing the important principles for S&OP, which

can be followed by an organization to strengthen

existing S&OP as follows-

1) Top management is the one who should

lead the S&OP implementation and

assessment. Employees in the organization

must be aware of S&OP & their roles.

Executive S&OP champion must be an

influential personality and must have

experience in demand or supply

management at higher level in the

organization.

2) Resource effectiveness must be based on

the multi SBU combination consisting of

supply chains with the focus on the profit

Improvement of S&OP and its Synchronization with advanced functions:A key to sustainable operations management

Opsessia

8

Club Room

Opsessia

34

Class Room

optimization.

3) S&OP document must be used for each and

every process requiring the data about

sales/operations or financial plans. It must

be used as a master document in the

organization. It should not be redundant or

substitutable.

4) Every employee in the organization must

participate towards the development of

S&OP if a specified process is supposed to

be done by him/her. Right people must

present right work at the right time with

clarity about their activities and roles.

5) Accurate data must be used or obtained by

using formatted data obtained from

shipping schedules, forecasted sales,

warehousing, production or from other

operational management processes in the

organization.

6) Use of collaborative platforms increasing the

frequency of the interaction between the

people to share the structured information

is necessary for success of S&OP and proper

maintenance of master data for getting

accurate output.

S&OP & other advanced functions and tools

With the advent of the technology and revolution in

distribution and logistics, Sales and Operation

Planning needs to be combined with other

application functions to improve the performance

of the organization in the view of the increasing

competition.

Synchronization with CPFR

The famous Collaborative Planning, Forecasting and

Replenishment (CPFR) concept used by Wal-Mart

(1995), P&G and others, is a function that has

potential to streamline the organizational

forecasting and eventually helping S&OP to increase

the clarity and performance through different ways.

In CPFR the burden of replenishment is on the

collaborative partnership of the customer and the

supplier. Thus, the retailer's point-of-sales data

(POS) data is used for forecasting. Promotions on

sales, exception items, major customer relationship

maintenance, etc. issues are handled collaboratively

& resolved. When it comes to organization of

supplier we can say that S&OP plays a major role in

breaking down internal barriers. Thus these two

functions can work simultaneously to increase the

Supply chain efficiency.

Synchronizing CPFR and S&OP activities will lead to

the sharing of information from both the functions

and input to each other for better performance.

The accurate forecasts using POS data and periodic

update about inventory from CPFR function is used

as input for the S&OP activities. The market trends

can be studied at CPFR end to use it as the indicator

of market conditions. The decisions taken at the

S&OP are then implemented at retailer levels like

promotions, operations management related

decisions, etc.

The monthly schedule of CPFR and S&OP must be

tightly coordinated and coherently maintained by

adhering them together. Week 1 activities of CPFR

activities must adhere to week 1 activities of S&OP

also Week 2 activities of CPFR activities must

adhere to week 2 activities of S&OP and so on. The

schedules of both functions must be aggressively

adhered to get efficient output.

The demand planners who are involved in the CPFR

process and dealing with different chains or

7

OpsessiaClub Room

India: An emerging face as a Global Supply Chain Management Hub

When it comes to producing products at low cost and

higher quality, it's a common notion for manufacturing

firms to think of Japan or China. While manufacturing

products, the three important aspects on which a plant

location is decided is the cost, quality and delivery. China

and Japan has proved their leadership in producing high

quality goods at a lower cost and maintaining a stringent

timeline. All this has been made possible through years of

research, fine tuning in Operations and Supply Chain

Management, through initiatives like TQM, Kaizen, Six

Sigma, Lean manufacturing and many other operational

excellence practices. As a result these countries have

emerged as a preferred destination for manufacturing

firms and have emerged as the leading exporters in the

world along with other developed nations like Germany,

USA and European Union. thIn 2010, India ranked 17 overall in total exports to the

thworld. However, India ranked 7 in the world for total

vehicle production in year 2010.

The prime reason for India being on the top of the charts in

Automobile production is the increasing demand for 2 and

4-wheelers in India. However traditionally in Automobile

sector India was never considered as an exporting country.

All the indigenous automobile manufacturers usually used

to cater to the domestic demand and designtheir

Operations and Supply Chain management accordingly.

However this scene is changing and that too rapidly. With

improvement in Infrastructure, favourable central and

state government policies and the opening up of the

economy has caused many firms to rethink their supply

chain management strategies. The following two articles

which appeared in the Economic Times on the same day rd(dated 3 Oct 2011) are the proof of the new supply chain

management strategies adopted by Global Automobile

manufacturer in India.

The New Operations Strategy

The automobile demand for 4-wheelers and commercial

vehicles like trucks and goods

carrier are increased manifold in

India. The Automobile industry in

India is one of the largest in the

world and is also one of the fastest

growing industry globally. India's

passenger car and commercial

vehicle manufacturingindustry is

the 7th largest in the world, with an

annual production of more than

3.7 million units in 2010*.

According to recent reports, India

is set to overtake Brazil to become

the sixth largest passenger vehicle

producer in the world, growing 16-

18 per cent to sell around three

million units in the course of 2011-

12*. In 2010, India emerged as

Asia's fourth largest exporter of

passenger cars, behind Japan,

South Korea, and Thailand.

With increase in domest ic

demand, global automobile

manufacturers are rethinking their

Supply chain strategy and are

s e a r c h i n g f o r i n n o v a t i v e

techniques to take advantage of

35

OpsessiaClass Room

customer group have to participate in the joint

responsibility of S&OP so that the data collection

for demand management is uniform for a particular

segment with no variations and can be aggregated

to calculate the aggregate demand and

corresponding supply capacity at S&OP level as

shown in fig.1.

The study conducted

(Williams) on CPFR and

S&OP synchronization

suggests that in only 10

months, the forecast

accuracy was improved

from 27% to 70%. It

suggests that the

efficiency of the

organization increases

with this potent

combination of CPFR

and S&OP.

Optimization of Output using BI tool

Business intelligence/ Analytics collect the

information from all the parts of an organization

and allow top management executives to get the

required analysis reports using data mining.

Following features make BI a tool

that could be used by executives

involved in S&OP process for the

efficient use of data spread in the

organization by analyzing it.

Advantage of BI over ERP: Unlike

the occurrence of the different

number under the same heading

in ERP, BI assures that the data

used across the organization is

same. Importantly the use of

single value of a KPI or

component helps the organization

to reduce the conflicts during

S&OP. Multiple values in ERP may

have a negative effect on the improvement efforts

of S&OP by the organization.

Also ERP does not provide the options such as

Figure. 2. Using BI for S&OP and its improvement

Opsessia

6

good Finance Manager or a good Marketing Manager should also be a good process manager. However, senior people in Finance or Marketing may know a lot about their respective fields but are not very good at managing processes. Similarly, the concept of bottlenecks can be applied to improve the functioning of any department. Sadly enough, the application often remains limited to the Operations function where people are more aware of the concept. A third concept is quality management. Quality is not only required in the final product or service but also in the way bills are passed by Finance function or the way orders are processed by Marketing function.

External to the firm: Firms need to have a strategy to handle competition. An operations based strategy can help a firm to not only establish itself but also take competition head on. According to Hayes and Upton (1998) superior operations effectiveness based on capabilities that are embedded in the people or processes, becomes inherently difficult to imitate. Firstly, an operations based strategy is not very obvious to competitors for quite some time. Secondly, by the time the competitors come to know of the strategy the firm has already gone down the learning curve and developed capabilities which make imitation difficult. Thus, it provides sustained competitive advantage to the firm.

Upton and Hayes provide many examples how small companies have successfully taken on competition in their fieldsby having an operations based strategy. Two such prominent examples are those of South West Airlines and Wal Mart. South West Airlines began operations in 1971. With a clear operations strategy focused on customer service, gating operations and human resources the airlines developed superior operations and in 1992 it was the only American airlines which was making profit. Any attempt by competitors to imitate its operations based strategy failed. Similarly, Wal Mart became a public company in 1972 with just 30 stores. With an operations based strategy, it grew to about 650 stores in a little over ten years. It used computers to track sales and co-ordinate replenishments. Rival firm K Mart,which at one time was much larger than Wal Mart, attempted to imitate this strategybut failed.

Operations form an integral part of any firm. In fact, it is the very reason for other functions to exist in the business world. Finance, Marketing and Human Resource strategies are meant to compliment an Operations strategy and not vice versa. It is high time that our B-schools as well as the students studying in these schools realize the importance of this subject so that the country moves towards excellence in firm based operations which can fuel the growth of the economy of our country.

References1. Hayes, Robert H and Upton, David M

(1998), “Operations based strategy”, California Management Review, Volume 40, No. 4, pp. 8-25

2. www.chroniclesmagazine.org

Dr. SiddharthVarma

Professor, IMI

Specialization

Educational Qualifications

Interest Area

Faculty Profile

Quantitative Techniques & Operations Management

B. E, M Tech, MBA, Ph.D

Supply Chain Management, Technology Management

Professor SiddharthVarma did his B. E. in Mechanical

Engineering from the erstwhile University of Roorkee

(now IIT, Roorkee) in 1985. He did his M Tech from Indian

Institute of Technology, Delhi in 1987 and completed his

Masters in Business Administration from Asian

Institute of Technology, Bangkok in 1993. He obtained

his Ph D from IIT, Delhi in 2008 in the area of supply

chain management.

Faculty Room

5

OpsessiaFaculty Room

Relevance of Operations Management to Management Education

All activities which convert input resources into useful

outputs, either goods or services, are termed as

operations. It is obvious that operations would be

required in any business organization (or for that matter

any organization!) which intends to produce useful

products or services. Operations Management is taught in

B-schools worldwide as a core subject along with other

core subjects which cover Marketing, Finance and Human

Resources. Even though operations are required in service

organizations as much as they are in manufacturing

organizations, the syllabus for the core subject is often

inclined more towards manufacturing. The relevance of

studying Operations Management can be discussed both

at nation level and the firm level.

Nation Level

The importance of studying Operations Management as

part of management education can be appreciated

considering the role of Operations / Manufacturing in the

economy of any country. Manufacturing contributes to

about 15% of our GDP. Despite the fact that the service

sector is growing manufacturing has a crucial role to play

in the growth of the economy. The Industrial Production

Index is considered an important parameter for measuring

the economic growth of the country. A drop in Industrial

Production Index is always a matter of concern for our

Finance Minister.Needless to say, manufacturing holds the

key to economic growth of our country.

The role that manufacturing can play in the economy of

any country becomes obvious when we look at the two

countries: China and the USA. China is now universally

accepted as an economic superpower (apart from it being

a military superpower). The growth of China into such a

strong economy has largely been due to the fact that it has

developed excellence in manufacturing and now

dominates the world markets, be it developed economies

in the West or developing economies like India. Thus,

Operations Management has contributed to the rise of

China as much as it has been the reason for the fall of the

US economy. The USA allowed manufacturing to move out

to developing countries, specially to China resulting in the

current state of affairs. It not only made the US indebted to

China for billions of Dollars but also brought in the high

unemployment rate which is a major cause of concern for

President Barack Obama. In 2007 alone, USA lost 374,00

jobs based on goods producing industries

(source:www.chroniclesmagazine.org) .On the other

hand, China did everything it could to promote

manufacturing and exports in the country. It could attract

huge foreign direct investments and companies moved

their production base to China attracted by the low wages

and incentives provided by the Chinese government.As a

result, the balance of trade is skewed unfavorably

towards the US. If the American economy could do well by

merely focusing on services it would have done so.

Unfortunately, this is not the case. Growth of

manufacturing not only contributes directly to the

economy but also creates services, thus, indirectly

bringing about a growth in services sector too. If a factory

is set up for manufacturing a product it automatically

creates a demand for providing services like

transportation and warehousing. The US probably failed

to realize this. In India, the government has realized the

importance of manufacturing and formulated a

Manufacturing Policy for the country.

Firm LevelApart from the role of Operations Management at the level of economy of a country, its role at the level of business organizations is not difficult to understand. The relevance of studying Operations Management at firm level can be studies with respect to factors which are internal to the firm and those factors external to the firm. Internal to the firm: Michael Porter, in his Value Chain Model, has divided activities in business organizations into Primary and Secondary activities and he has included Operations among the Primary activities. Since Operations creates products or services it is actually the backbone of any business firm. It is the reason for existence for Finance, Marketing and Human Resources functions. It would be strange if the students of business management did not understand basic operations of a firm. Operations of a firm require huge investment both in terms of fixed costs as well as working capital. Understanding these operations and improving them can substantially affect the bottom line of a company. The concepts taught in Operations Management find application in other functions too. Take for example, the concept of process management. Processes exist in all departments of a firm, not only in Operations. A

Opsessia

36

Class Room

slicing and dicing, drilling down and across the wide

database to filter out the information and generate

the useful reports. These options are provided in

the BI tool. Visualizations in the dashboards makes

BI more useful tools for managers preparing for

S&OP meetings.

BI allows communicating and helping people; the

most important part of the S&OP. Business

intelligence empowers employees who are involved

in the S&OP process. It eventually suggests fewer

problems for S&OP interlock making it easier to

arrive at consensus during S&OP.

Framework for implementation of CPFR and BI in

combination with S&OP:The system with the S&OP can be improved greatly with the implementation of the CPFR and BI. Quite a few researches have been done on the synchronization of the CPFR and S&OP. At the same time synchronization of BI tool with these functions increases the efficiency of the system impressively. The suggested framework is as shown in figure.

CPFR schedules must be in sync with the monthly cycles of the S&OP meeting and demand-supply management. The demand planning for each customer segment should be taken into consideration using the CPFR collaboration with Retailers. POS data should form the basis of the forecasts. Business Intelligence tool should be implemented to collect the data (online servers). Functional divisions like marketing, operations, Demand Planning, etc. should use the same data obtained by BI system. The Finance Pre-S&OP should be carried out for the reconciliation purpose. The formal S&OP meeting and aggregate level demand representation will make the organization capable of generating the consensus demand plan which can be used for the further MRP (Material Resource) Planning Procedures.

Conclusion

S&OP is crucially important process for every

organization. Nearly every successful organization

follows it. But if it is not carried out properly and

hidden challenges are ignored then it becomes

difficult to achieve the desired results. So the

improvement of the S&OP process must

be continuous for the sustainable

operational management. At the same

time various functions that can be

integrated with S&OP for improvement

in the performance of the organization

must be combined and synchronized

with S&OP. This will make sure that with

the change in the technology the

organization is changing & is capable of

enhancing its S&OP process for better &

sustainable performance.

ReferencesBower, P. (2005). 12 Most Common Threats to Sales and Operations Planning Process. Journal of Business Forecasting

S & OP

Finance Pre S&OP

Sales Marketing Demand Planning

Product/

Brand Management

CPFR

Customer trends of POS Data representing

Demand

Demand Planner

Customer Segment 1

Demand Planner

Customer Segment 2

Demand Planner

Customer Segment n

Business Intelligence

Consensus Demand Plan

Figure. 3. Monthly Synchronized Schedule of S&OP & CPFR with the help of BI

Opsessia

4

In this Issue

Faculty Room :Relevance of Operations Management to Management Education - 5

Club Room :India: An emerging face as a Global Supply Chain Management Hub - 7

Class Room :

Achieving Operational Excellence through Financial Instruments - 11

Build Operate Transfer- A new schema in Infrastructure Development - 18

“Going Green” Operational Strategy of European Airlines a lesson for the-

India's Airline Industry - 21

Impact of GST on Supply Chain Industry - 25

Role of Information Technology in Supply Chain - 28

JIT and supply chain disruptions - 31

Improvement of S&OP and its Synchronization with advanced functions-

A key to sustainable operations management - 33

ADAPT TO THRIVE Mass-Lean-Agile-RAM - 15

37

OpsessiaClass Room

Methods & Systems, Vol. 24, No. 3.pp.4-14.

David, A. (2007). Planning process particulars : Meeting your just-in-time customers' demand. APICS magazine.

Gips, J. (2002). Sales and operations planning across the supply chain. APICS International Conference Proceedings

Raekar, R.H. (2002). Marketing : a key collaboration for effective sales and operations planning. APICS International Conference Proceedings

Stahl, R.A. (1999), Sales And Operations Planning – A Fundamental That Still Works. APICS International Conference Proceedings

Wood, C.B., & Boyer, J.E. Jr. (2002). Sales and Operations Planning at Elkay Maufacturing: A Case Study. APICS International Conference Proceedings

Oliva, R., & Watson, N. (2006). Cross-Functional Alignment in Supply Chain Planning: A Case Study of Sales and Operations Planning. Harvard Business Working Paper. No. 07-058

Mazel, J. (2009). New research tells how to put muscle into S&OP Process, Supply chain strategy

Williams, M.K., Combining CPFR with S&OP to attain optimum customer service. Williams supply chain group

Hymanson, J., Whitepaper on Enhancing Sales and Operations Planning with Forecasting Analytics and Business Intelligence

A Guide to CPFR Implementation. (2001, April). Report by Accenture, ECR Europe.

S&OP Process is a Strategic Driver for Improving Business Performance. (2008, December). Research Brief, Aberdeen Group.

S&OP's Impact on Global Supply Chain

Transformation. (2008, February). Research Brief, Aberdeen Group.McCarthy, T. and Golicic, S. (2002), “Implementing Collaborative Forecasting to Improve Supply Chain Performance,” International Journal of Physical Distribution & Logistics Management. 32:6, p. 431-45

Sneha RamtekeIIM Kozhikode

Akshay JadhaoIIM Kozhikode

3

Opsessia

Team Genesis, the Operations Club of IMI has taken the initiative to come up with the very first issue of “Opsessia” a magazine dedicated to the field of Operations Management. In today's dynamic global environment, operations management has assumed centre stage as every firm tries to achieve Operational excellence to reduce cost, improve quality and achieve efficient delivery.

This is the inaugural issue of a proposed Biannual Operations magazine. The Genesis team had held a competition calling for articles from the MBA student fraternity to contribute towards making of this inaugural edition of the magazine a success. The response was overwhelming and the quality of articles received was brilliant. However due to space constraints we have not been able to print all the received articles in our magazine. This inaugural issue contains the Top 8 articles which were meticulously selected by the Genesis team members assessing the quality of content and style of presentation.

The magazine contains articles and write-ups relevant to the field of Operations written by students from across the top business schools in India. Time and again it proves the enthusiasm of the students toward the field of Operations management and clearly emphasizes the importance of Operations Management in the current business scenario. This issue also contains some articles written by our distinguished faculty from the field of Operations Management and a few written by our Genesis club members.

I am glad to present to you this magazine and hope that you will have a pleasant reading experience as you go through its pages.

Pradip K Bhaumik,Professor, Quantitative Techniques and Operations Management & Former Acting DirectorInternational Management Institute.

A Word from the Prof P.K Bhaumik

Opsessia

38

Strategy Room

“The best CEOs I know are teachers, and at the core of what they teach is strategy”

--------------------------------------------------------------------- Michael Porter [Harvard Professor]

650 students....250 teams.... 38 top B-schools....Seven rounds........120 Hours..........and finally teams from IMI

and SPJMIR battled it out in a mind boggling game of strategy –Ranneeti, designed and executed by Genesis,

The Operations Club of IMI.It was a one of its kind online event that kicked off on 19th October and concluded th

on 4 of November. Ranneeti created much buzz in the B-school events arena and saw participation from top

B-schools like IIMA,IIMC,FMS,XLRI ,JBIMS,IIMK,NITIE,MICA,IIFT,IIMR and SJMSOMto name a few.

“All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is

e v o l v e d ” - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - S u n T z u

The importance of strategy in business cannot be overemphasized.This was the driving force behind our

effortsto develop astrategy game, which is based on game theory. The event was an online simulation that

tested one's capabilities in areas like planning, futuristic thinking, creativity and patience. Each team had a

maximum of three members and had to place their warriors in the battlefield which was a 6 X 6 matrix

(provided in an excel file).The warriors included Snipers, Bombers, Commandersand Soldiers each with

different skill sets. It was an intensely interactive game that tested one's strategic skills through combats

between warriors. Initially teams were given a sum of money, and a pool of warriors.Teams had to recruit their

own army choosing from soldiers, snipers, bombers and commanders. With its sheer energy and twists lurking

at every corner, Ranneeti11' did manage to sweep the participants off their feet. The one team that survived till

last would be christened the 'Lord of Strategy'.

With each round, the difficulty level increased and so did the excitement. In theinitial two

rounds,Commanders and Bombers were the most powerful units, in thelater stages, Snipers and finally in the

knockout stages the Soldiers reigned supreme. Constraints were introduced in the form of walls inside the

battlefield in order to enhance the difficulty with each successive round. The idea was to give the players a feel

of real life warfare where not only rules but also the game changes. Real business world is dynamic and shoots

up new challenges, reverses the conventions and again brings them back and tests your strategic and intuitive

abilities.

The following is the list of colleges whomade it tothe top 16:

XLRI,SPJIMR,IMI,XIMB,IIM Calcutta,BIM Trichy,MDI,IIT Delhi and IIT Madras.

Eventually, team 'Chanakya' from SPJIMR emerged as deserving winners of a close fight against team

'Whistleblowers' from IMI and took the crown of 'Lord of Strategy' in the finals.

Ranneeti 2011Strategy

Opsessia

A Word from the Director General

Dear Friends,

It gives me immense pleasure to pen down my thoughts for the inaugural issue of

“Opsessia-obsessed with operations” magazine. This initiative taken by Team

Genesis, the Operations Club of IMI, will provide a forum for dissemination of ideas

and best practices in Operations Management.

Ever since its inception, International Management Institute (IMI) has been a centre

for nurturing the very best of the managerial talent in the country. To achieve this,

the Institute has taken a number of initiatives to groom future leaders who are value-

driven and yet conscious of the fact that to achieve sustainable organisational

growth, one cannot overlook the societal and environmental concerns. As part of these initiatives, students are

encouraged to come forward to implement ideas which can help them in exercising their managerial talent and at the

same time provide value addition to management education. The progress of IMI has been noteworthy, with its students

performing remarkably well in the corporate world.

I believe “Opsessia” is a platform where students can share their views and come up with novel ideas to contribute to the

all pervasive world of Operations Management. This will enhance the awareness regarding this subject and will enthuse

the readers to be part of Operations function of an organization. It is a manifestation of the students' creative ability and

their unfettered ambitions. Entirely a student-driven initiative, it displays the potential of young innovative minds that are

always searching for newer horizons to explore.

I wish the young, enterprising minds a bright and rewarding future.

Dr.Pritam Singh (Padma Shree)

Director General

International Management Institute

2 39

OpsessiaStrategy Room

1

From the Editor's Desk

We are what we repeatedly do. Excellence, then, is not an act,

but a habit. – Aristotle

Welcome to the inaugural edition of “Opsessia”- the Biannual

Operations magazine of IMI. It gives us immense pleasure to

bring out this issue, which is dedicated to the world of Operations

management. This magazine is inspiredby the insightful

thoughts of highly intellectual professors and inquisitive students

studying across B-schools in India, thus blending experience and

new thinking from the future leaders.

The articles in this issue are on different aspects of Operations

Management and cover a myriad of topics like Build-Operate-

Transfer, Sales and Operations planning, Green Strategy, JIT,

Impact of GST on SCM, changing trends in Global SCM and

achieving operational excellence through Financial Instruments.

This is just a glimpse of what we aim to bring to you in the future. I

hope that “Opsessia” will help you gain more insight into major

developments in the field of Operations Management across the

globe.

Wishing you all an exciting reading experience.

Team Genesis.

Looking forward for to your feedback and suggestions at [email protected]

For more information on Genesis, the operations club of IMI visit our website

www.imigenesis.com

TEAM GENESIS

Senior Genesis Team

Ambuj

Atreya

Richa

Sonali

Vijish

Junior Genesis Team

Alisha

Anubhav

Jai Shivam

Mithilesh

Ratan

Shilpa

Shishir

Srikant

Sumant

Tarun

Opsessia

40

Genesis Room

Top

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(Left to

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